-Class 2 1/24/13 Single Employer Plans 1-Coverage-You dont worry about the PBGC unless you dael with a PBGC plan-Is a threshold question throughout Benefits:-ERISA Coverage-Tax Qualificatoin-Title IV has its own Coverage Rules-Whenever someone has an issue that is related to employee benefits there is a mental outline that you developwhatever the issue is it arising through a covered plan?-Until you cross the coverage threshold you dont know what your rules are using. But we dont know we are in title IV coverage unless we know that we have gotten past it. If we have a covered plan, we have PBGC premium Issues-PBGC Premium Issues Hot Area-Since 1974 when PBGC was created there was always a flat rate premium. There has always been a variable rate premium, and now there is a termination premium that has been added. -PBGC Guarantees-To talk about how it is limited. It doesnt guarantee whatever the plan promises. Title IV is a compromise between social policy and insurance-On the private sector insurance side you get what you pay forhealth insurance life insurance whatever it is. You pay a premium based on risk to the person selling insurance.-Title IV doesnt have a profit motive, but what you will see about PBGC premiums is that there is discussion as to whether it should be risk based.-The other way to look at it is that you want to encourage plans even in risky situations. -Why is this controversial?-Back in 74 there was even debate that this shouldnt be some grand social insuranceor that it should be completely social insurance.-Reportable Event Issues-Transactions that are going on with the plan sponsor that (C) has said and that PBGC has echoed that we want to know about.-Wht talk about this? -Because most of our Clients are operating their businesess that if they are a private business that this is between them and whomever they are daeling with. If they are selling the business or buying one, they have the idea that it is between them and the other party.-It is an entirely different discussion when they trealize that this deal has to be reviewed by the government.-Significant events of the life of the sponsor that the PBGC wants to know about-Titles of ERISA-Title 1 Fiduciary Rules-Whether the coverage rules apply-Title 2 Tax Qualification-The thinnest of the titlesit says go look at the tax code-Title 3 Administrative Mattres-Actuarial Rules-An actuary is very sophisticated mathmetician who calculates how much something is worth. They make assumptinos to arrive at values.-In the pension world, (C) decided that some bodynot the government and not the employer had to sign off on pension funding-The whole problem with Studebager was that there was no money set aside.-If you just let that up to the employer, in a lean year they would just not fund the plan.-Joint Board for the Enrollment of Actuaries Kind of like the ABA. It is a quasi-public body. You have to abide by the principal that you are doing your job not just for the client but that you have a public purpose in doing your job.-Title IV-PBGC where we are spending most of thre course-Title 1 Plans-Employee Pension Benefit Plans and Employee Welfare Benefit Plans-> Are employee benefit plans-And you have the definition in title 1 of employee benefit plans-Pension Plans-DB-Traditional (final average pay gold watch plans), cash balance (you get a credit every year with a hypothetical account and it will grow at a treasury rate until you retire it is a DB plan because they were decided to meet actuarial funding principles). -DC-Employee Funded 401(k)-Employer Funded Profit-sharing kinds of plansalthough we are not limited to profits anymore-Title 1 Provisions-Definitions-Reporting and disclosure-Reporting means reporting to govt, disclosure means telling participants-Participation and vesting-If the employer is going to get a tax deduction for the contribution or employee gets a tax break for funding it then it has to be held in trust and there are rules for how the employee walks away with the money-Participation being the ruels that the employee has to meet and the vesting rules being ownership ruleshow long you have to work to have ownership in whatever you earned-Fundign-If you are going to tell employees that you are going to fund for the rest of your life you have to have rules for whatever you earn is going to be funded-There is a lot of cross reference to the IRC-Fiduciary Provisions-If we created a trust, do we view that as employers cash? No. Fiduciary provision in Title 1 prevent the people who are handling the plans money from taking action that could put the employees benefit at risk.-Administrative and enforcement rules-Coverage-Drafted very broadly. The core principle that it is being covered unless there is an exclusion for the type of plan that you are dealing with. If the benefit plan affects commerce you have Title 1 Coverage presumptively, but (C) has gone in and written out a whole bunch of plans.-Exempted:-Government Plans-Not covered by title 1it says they are not covered-Church Plans-Look at title 1 4 of ERISA Plans of church entities not covered-Unfunded excess benefit plan-Non-resident Alien Plans-Summary of Tax Qualification Principles-Plans, to receive tax preferred status, have to satisfy 401(a) of the IRC-IRC 401(a)(1)-(a)(37)-It is simply a dormat. You work through 401(a) just to know that it needs to meet minimum funding requirements which are in 410. The core rules are in other sections.-Parallel provisions for participation, vesting, and funding-Other tax-realted askepcts of retirement plans-A pension plan is NOT afforded tax benefits, unless it meets the requirements of 401(a)

-Overlap Between Title 1 and Title 2 Issues-There are ERISA plans that are not tax qualified. Title 1 of ERISA doesnt say anything about tax qualification being required. Likewise, a code doesnt require a plan to be covered by Title 1 to be tax qualified-There is mostly overlap, but not entirely-Church plans are exempt from Title 1, but they have to meet some provisions of the tax code, so they are subject to Title II.-Title IV of ERISA:-Establishes PBGC-Covers most private defined benefit plans-Guarantees benefits-Allocates assets in terminated plans-Provides methods of plan termination-Creates liabilities for terminated plans-Includes the Multimeployer Pension Plan Amendments Act of 1980 (MPPAA)-Title IV Covers - 4021(a)-That have:-1. Obtained an IRS determination letter that the plan has met the requirements of 401(a) of the IRC-In this world of benefits, you are hearing about IRS determination letters. The IRS has a staggered remedial amendment cycle. If you want to rely on the form of the plan about making a judgment about whether the plan is qualified you need to have a determination letter and make a fixed determination awith a plan document.-If you do that correctly, the IRS will send you back a 2 page letter that says you have reliance on the form of the planif it has one of those and it is a DB plan it is presumptively covered-It is a bit of a funny issue because plans dont have to have these letters. In fact, the IRS is getting close and closer to not issuing determination letters. They are expensive and tiem intensive. -2. In practice, met the requirements of 6401(a) for the past 5 years-Plans that are NOT COVERED 4021(b)-Individual account plans (aka DC plan)-But a cash balance is not REALLY accounts.-Government Plans-Local governemnts have over promised and underfunded-Church Plans-Separation of church and state-Substantial Owner Plans-DB plans for small businesses have become hot. It is an area where small business owners with a decent cash flow can sock away a lot more. There are strict limits on how much you can fund themyou have a much higher limit than DC plans.-If those small privately owned employer meet the requirements to be a substantial owner plan or professional service employer plan you can avoid PBGC coverage-A substantial owner plan covers a sole properiter, capital profits interest>10%, voting stok or all stock >10%-Professional Service Employer Plans-25 active participants or less-Those rules are found in 4021 of ERISA--4021(b)(13)-You are talking about services (not manufacturing).-Professional Srevices are ones that require higher level training to perform. And they tossed into this category performing artists.-Attorneys are professional service providers if under 25. You can keep it out of PBGC coverage.-ActuariesAccountants-PBGC Premiums - 4006, 4007-Flat Rate Premiums: $42 per participant 2013, up from $1 in 1974-Multiemploer Plans: $12 per participant

-Variable-Rate premiums (single-employer only)-$9 per each 41,000 of unfunded vested benefit--Termination Premiums-Generally $1,250 per participant, paylbe in 3 annual installemtns after termianton of a single-emplyoer DB plan-Special rule for plans terminated during bankruptcy reogrnizations-Installemntcs come due after emergence from chapter 11-If a plan is terminated during bankruptcy, then the installments are deemed to come due after it comes due in Chapter 11-Not applicable to Multiemployer plans

-Liability for Premiums-Sinlge-Employer Plans-The contributing sponsor and all membres of the sponsor are the -Controlled Gropu-Multiemplor plans-the Plan

-Reportable Events - 4042-Post-event notice of certain events-Pre0event notice of specified events-Underfunded in exces of $50 million and -Funded percentage of less than 90 percent-And a privately held company-A public company has to make a public filing with the SEC, so that is why it is only private companies-Notices generally reported on PBGC form 10

-Reportable Events - 4043-Reductoin in active participants-Actives decline to less than 80% at Beginning of Year, or 75% from preior year-Why?-If your active participant base is dropping that much, something has happened. There is not normal attrition like that.-May also be an event under 4062(e) if reduction caused by cessation fo operations ata facility (downsizing liability)-SEPARATE reporting required under 4063(a)(1)-So just by filing form 10 you are not free from filing them-The real reason is that the timing is a little bit different. -Reportable Events - 4043(c)(5)-Failure to make minimum funding contribtuiosn-Includes payments required as a condition of IRS minium funding waivr-Notice filed on Form 200 if aggregate unapud contirbtuiosn exceed $1 million-Notice required within 10 days when aggregate unpaid MFC > $1 million-Indicative of cash flow problems-It is usually not an oops we didnt make that payment (but that does happen). -A statutory lien has arisen-The PBGC has no authority to determine the existence of the lien. The lien arises by operation of law. -The day after the payment is due the lien arises. They dont create it, therefore, they cant negate it.-they DO have discretion of whether they file a notice of lien. The ones that creditors worry about as perfected liens. They may exercise discretion about whether they notify the world about the existence of the lien.-Change in contributing sponsor or controlled group member (aka controlled group breakups)-Transactions that result in one or more persons ceasing to be members of the plans controlled group, e.g.-Single employer plans are a tar babythe employer touches them and any change to that employer is a threat to the PBGC (merger, asset sale)-Stock sale-Trasnfer of a pesnoin plan in na asset sale-A merger-On the multiemployer sidenot so much. There can be a sale of a business on the multiemployer side and the multiemployer plan may never know about it. As long as an entity continues to fund the plan it doesnt matter who owns it.-So in this way they are VERY different-Reportable Event 1-This is 1 employer with 2 plans-Next Slide-Company A mves out with Plan A, and Company B has Plan B with Company C in its control group-The PBGC wants to know about that because A may be a poorly funded entity and has a plan that the PBGC ensures. -Reportable Event 2-Company Q gets Plan Q-Assets, emplyoees, and Plan Q to Company R-Company R gets plan Q-So now the PBGCs buffer has changed-Extraordinary Dividend or stock redemption-If the employer is going to take an extraordinary distribution you have to tell the PBGC about that-Spinoffs, mergars, or transfers of benefit liabilities-All of that, the PBGC must be notified-Loan default-These are a big deal, btu any time you are dealing with a client, there is some kidn of defaultBankruptcy or similar settlement

-PBGC Guarantee - 4001(a)(8), 4022-Single Emplyer Plans-PBGC gurantees the payment of nonfrofitable benefits under a plan that is COVERED by Title IV when it terminates-The insurable event is that the plan has terminated and the PBGC has become its trustee. There are documents that create that legal relationship and they track back to the statute.-Multiemployer Plans ENTIRELY DIFFERENT GUARANTEE THEY DONT TERMINATE AND GO TO THE PBGC-They require financial assistance. The plans borrow from PBGC (usually with no hope of repaying) but it DOES NOT take over those plansthey exist as their own separate legal entity. The insurable event for the multiemployer plan.

-Only 2x in PBGC history have they ever taken over a multemplyoer plan

-Conditions to PBGC gurantee-Nonfrfeitable Beenfit-A benefit for which a participant has satisfied the conditions for entitlement under the pan or ERISA on the Date of Plan Terminatoin (DoPT)-Other than submitting an application, retirement completing a required waiting period, etc.-This does NOT mean vesting. Here in Title IV world we are not talking about vested benefits.-Guarantee requires non-forefritability-The exception to that is forfeitable because you had to submit an application and didnt, or you had to retire and didntAnd if that is the only reason that the benefit is non-forefitable that is ignored under ERISA-If the set up is that he particpaitn has to retire and then wait 30 days and then gets the benefit but the plan terminates after 12 and it goes to PBGCthat benefit is not nonforetiable even though it has vested-Other necessary conditions-the plan is covered under title IV when it terminates, i.e. on the date of plan termination-This is the date of the Godfather Law: when all family business is settled.-Fetty v. PBGC 915 F.Supp 230-Copmany called CFI filed Chapter 11 peition on Nov 7 1990-In March of 1992, PBGC determines that the plan should be terminated-March 19 of 1992, Plan terminated by agreement between PBGC and CFI-March 3, 1993, old CFI sells assets to New CFI and employees are laid off including MR. FettyThe plan has a provision that says that If you are terminated from emplyometn as a result of the sale you get an enchanced pension benefit. Fetty says I was here on March 2 1993, on March 3, 1993 I wasnt working for you anymore. I lsot my job because you sold all the assets, PBGC guarantee my benefit.-PBGC says: no. How can that be? The plan says you have to be laid off as a result of a sale. There was a sale and Fetty was laid off. -On March 19, 1992 the plan was terminated. He was not laid off as a result of an asset sale at that time. By the time he met the conditions the plan didnt exist anymore. So meeting those kinds of conditions is not enough. You have to meet the conditions when the plan terminates.-Limits on PBGC gurantee-Accrued-at-normal litigation-PBGCs gurantee is limited to the amount payable under the plan as a straight-life annuity at normal retirement age-Those types of plans gave good benefits to young people and PBGCs guarantee is expressed as an age 65 straight life annuity guarantee. So whatever the benefit is that is what they convert it to.-Statutory Maxmimum-PBGC gurantee is calculated based on straight-life annuity, reitrment at age 65-up to $57500 per year for plans terminating 2013 or after-Phase-In-Beenfits and benefit increases are phased in at 20% per year.-What benefits does PBGC Pay?-PBGC pays the greater of the following:-the asset-funded benefits using plan assets, or-the guaranteed benefits under 4022-PBGC also pays a portion fo its recovers to participants-Section 4022(c)-Accured at normal limitation-EX: Neds accrued benefit under the plan = $1,000 / month an Normal Retriement Date-Ned retired 10 years early-Benefit reduced by 5% each year (i.e. $1k x 50%/year = guaranteed $500 year level)-Special Rules-Majority Owners - 4022(b)(5)-Sole props, 50 percent partners, 50 percent sahrehodlers-Have a longer phasez in. Would be 5 years for others 10 years from then-Deemed DoPT - 4022(g)-Plans terminated during bankruptfcy: petition date will be DoPT-Unpredictable contingent event benefit (UCEB) plant shutdown, layoff, etc.-Treated as if plan amendment adopted on date of event for purpose of phase-in-Deemed doPT-On bankruptcy date because that is petition date-Next Week:-Go over accured limitation-DB Terminations:-Standard, Distress, Voluntary, Plan restoration

-Ask Q about when a waiting period applies to when it is nonforefitable-were not talking about vesting. Vesting means you have met the statutorily prescribed vesting schedule. It is not really the test here for guaranteed PBGC benefitsthe PBFC only guarantees non-forefitable-The Title IV test is that it is a benefit for which the participant has satisfied the conditions for entitleunment under the plan or ERISA on DoPT-The issues for nonforfeitable dont usually arise in the basic benefit. The plan will say that if you retire, you will get 1% of your final average compensation x years of service. The plan will also say when you vesttypically cliff vesting over 5 years.-Lets say you have a participant that is 10 years into service, that participant has a vested benefit. BUT, say the plan terminates. Is the benefit nonforefietiable? -The Title IV test is if the participant has satisfied for the conditions of entitlement other than submitting na application, retirement, or completing a required waiting period - 4001(a)(8).-So you would say that the participant has met the conditions for retirement in that examplethat kidn of benefit is typically always nonforefitable-Where the FETI case came in, was that the CF&I plan said that if you are terminated from employemtn because of the sale of the company or the sale of its assest, then you will get an additional piece of benfits, so you have your plan benefit and then there is something extra you get if your termination from emploeymnt has occurred. In that case the plan had terminated before the plan sold its asstes, which is when FETI ost his job. -He wanted his benefit that he would get because it sold its assets.-But since it is judged at the plans termination date.-Age-Threshold of Service-Certain transaction of the company-but not usually basic benefits--Accrued At-Normal Limitation (A in AMP)Guaruantee is limited to the amount payable under the plan as a straight life annuity at normal retirement age-Statistocally the PBGC pays a high percentage, and you can start with the idea that 90-some percent of the people arent giogn to be affected-But if you are representing Airline pilots, they are a young demographic. You dont see a lot of 65+ year olds flying. If you want to move those people out of the cockpit and into some other form of employment in the economy, you are going to have to have a pension plan that pays them earlierbut PBGCs retirement age is geared towards 65 you want them to have a NRA of 55.-So if the Airlines plan goes over to PBGC that is where the interruption of the benefit flow to the participant might be. Now, the accrued at normal limitation may clip that participant.-Or if another kind fo company company has had a series of layoffs and uses the retirement plan to soften the blow. So you get some 51 and 52 year olds that go into retirement is normally 62, and then the company collapsesthat benefit is going to be adjusted. -Statutory maximum (the M in AMP) - $57,500 per year-Phase in 20% per yaer

-What benefits does PBGC Pay?-PBGC pays the greater of the following?-The asset funded benefits using plan assets, or-The guaranteed benefits under 4022-PBGC also pays a portion of its recoveries to participants-4022(c) Benefits -When PBGC takes over a plan, the PBGC seeks to collect the claim for unfunded benefit liabilities. It shares its recoveries with participatns udner 4022(c)-Accrued at Normal Limitation (A in Amp_-Ned has $1k month at NRD (Single Life Annuity)-If Ned retires 10 years early:-His plan reduced it because he is retiring 10 yaers early, accrued at normal for 5% each year ($1k at month normal retirement, then you reduce by 505%/year = $500 year benefit-Plan Supplemental benefit = $750 month until 65-Typicaly you only see supplements as an incentive for early retirement-Neds total benefit = $1,250-Limitation on PBGC guaranteed benefit-$1,250 > $1,000, so only $1,00 Is GUARANTEEABLE until age 65, reduced to $500/ month at age 65-Statutory Maxmimum Example-Zoes normal retiremenb eefint is $2,200 motnh (SLA)-Ttile IV max at age 65: $2,164/ mo SLA-Zoe retires at age 62-Zoe and spouse elect 50% joint and survivor annuity-Plan/PBGC concersion factors-Early retirement factor .82 (Title IV .79(-Plan J&S factor .8517 (title IV .8640)-Limitation on guaranteed benefit-Calculated plan benefit $2,200 x .82 x .8517 = $1,536,47-So because she is early and because she has a spouse the plan is going to pay her $1,536.47-The joint and survivor and earler retirement cost her money-Calculate title IC limit: $2,164 (PBGC 2012 maximum) x .8640 = $1,477.59-Class 3 1/31/13 Types of Terminations-Intro-There is surprisingly more litigation on this than you think. Hughes caseit took the Sup Ct saying that the only way a Title IV plan can terminate is through the means provide din Title IV.-Will Cover-Voluntary Terminations 4041-Involuntary Termaiotn 4042-Date of Plan Termioant 4048-Must establish a date of termiantoin-Restoration 4047-The last and only plan to do that was in the 1980shappens if abuses are found-Timeline-Adoption of the Pension Plan-Reportable Events-Some plans do, most will have to by the time they terminate. There are some that stay off of the PBGC radar screen. -Plan Termination-Restoration of Pension Plan-title IV of ERISA: ERISA-SUP CT: Thomas in Hughes said it is the exclusive avenueyou hav to go through the PBGC rules in Title IV-Plans may not be terminated by the following means (these are events that may be importantthey are sometimes necessary but not sufficient)-Abandonment-Sometimes this happens-But the plan will remain ongoingwhich people wil remain fiduciaryes-Corporate resolution-Will be NECESSARy 9 times out of 10 unless the PBGC comes in and does it for youyoull need that in your package of documents-The establishment of a plan is a settlor fundciotn-The decision to terminate a plan is a settlor function-But how do businesses make business decisions? They have a governing board and LLCs have a managing memberand they are the repository to do the actions-Very rarely will you work in a business where this is delegated to a lower level functionaryusually it is on the board level-Rejection as an executor contract in bankruptcy proceedings-Merger-You may merge one plan with anoher. There is now at leats one case saying MERGER IS NOT A MEANS OF TERMINATION.-Effects of Plan Termination: Single Employer Plans-When a plan terminates, it means cessation of:-Benefit accruals for participants-Funding obligations for employer-Only applies to ongiogn plans-Reporting obligations for employer-Issuing SPDs, filing 5500s (although there must be a final 5500 filing).-Annual premium obligation ceases at termination

-This looks like a good dealget rid of a lot of liabilities, but lets keep moving-CREATES OBLIGATOINS-Termination Premiums arise-Obligation to pay unfunded benefit liabilitiesAssets distributed to participants and benefitciaires (a IRC requirement)-For Underfunded Plans: PBGC trusteeship and obligations to guarantee non-forefetiable benefits-PBGC substitutes for plan fiduciaries-Not that PBGC becomes a fiduciary, but it does all of the things that fidicuairies used to do it replaces the fiduciaries-Types of Plan TErmioant-Voluntary (sponsor-intitated)-Standard Terminations-Distress Termionats-Involuntary (PBGC-initaited)-Mandatory Terminatoins-Only when assets are not sufficient to pay benefits that are due. The PBGC has to terminate, otherwise it is a discretionary action:-Discretionary Termination-Collective Bargaining Agreements:-Voluntary Terminations:-If a termination of a plan would violate the terms of a CBA, the termination cannot proceed:-If notified of a challenge before the end of its review period, PBGC will suspend its approval process until the challenge is resolved-The termination will end if the union objects that it would violate the terms of the PBGC-It is not really self-enforcing, the PBGC doesnt really enforce this either. For the employer to terminate, one of the requirements si that the employer notify the participant and notify the unionif they send out the notices of the termination, it is up to the union to say that violates the collective bargaining agreement. If the union notifies that it will cease processing termination. 1341a-This will even apply if the employer is going through bankruptcy. There is a process in bankruptcy for CBAs to be rejectedso a company that is going through bankruptcy, it is not a free pass. What they have to do is file a motion in the bankruptcy to reject the bargaining agreement-The bankruptcy wont prevent the unions objection from ending the processing of the termination on hold. -Involuntary (PBGC-initated termoation:-Collective bargianin agreements do nto prevent PBGC from initaitng termiations-The PBGC is acting in its own interestone of the requirements of 4042-PBGC typically acts when it views its insurance funds to be put at risk-Standard Terminations 4041(b)-Voluntary Termination: Standard Tremination-Basic Legal Requirements-Plan administrator must issue timely and proper notice of intent to terminate (NOIT) with a proposed Date of Plan Tremionat (DoPT)-PBGC does not issue a notice of non-compliance (NONC)-The plans assets must be sufficient for benefit liabilities when the final distribution occurs-Plan sponsor may commit to making the plan sufficient-The plan can commence or the employer can commecnce standard termination proceedings for an insufficient planwhich sort of sounds like it violates the principles of a sufficient termination. The reason for that is, Title IV recognizes that an employer with some means can write an IOU to the plan so that it will make an extraordinary contribution at distrubiton to close out. So the employers IOU is currency in a Title IV standsadr termination.-Majority owner may waive benefits to make plan sufficient-I..E. if someone owns more than 50% of the stock of the company and is underfunded they can wiave the obligation. If on valuing the benefit liabilities in the plan the actuary can say that the insuffiency can be covered by the majority owner waiving all or some of his benfitthey can do tthis-it is a backdoor to te 411(d)(6) protectionts that everyone else enjoye.-While the plan is active, NO participant, even minority owner can waive it. But on termination the majority owner can take a walk form his bnefit to close it out.-Benefit Liabilities-Benefict Liabilties are (quote from statute): the benefits of emplyoees and their beneficiares under thelpan (within the meaning of 401(a)(2) of IRC.-Benefit liabilities are essentially all fixed and contingent liabilities accrued under the plan, vested and unvested (on this point it is not nonforfetiable it is vested and unvestedthere have been cases on this where employers wouldn feel like they need to fund unvested benefits, but on a termination those unvested benefits are still nonforefitable)-Includes benefits not protected under the anti-cutback rules of ERISA and the IRC but If the plan funds medical benefits, death benefits, SS supplemetns-Those benefits are not only not protected under 401(d)(^) anit-cutback, they are NON-fundable. But if the employer wants to terminate the plan they will have to find money for it.-How do interest rates affect benefit liabilities? How do benefit liabilities affect contributions?-Interest rates are inversely related to the value of benefit liabilities. The process of valuing benefits or benefit liabitlies reflect the present value of a future promise.-How do I know that if I promise to pay you $100 10 yaers from now, how do I know what amount of money to set aside today?-You need to know how much money you set aside can be expected to earn and you have to know what conditions might occur during those 10 yaers-So you need to know how much you need to expect to earn. If the money can earn at a higher interest rate you need to set aside a greatr amount of money. The higher the assumed earnigns rate, the less that has to be set aside today.-The same principle with valuting benfit liabitliessetting aside all of the money right now that is going to discharge benefit liabilitythe only way you know how much moeyn to set aside today is to make an assumption about how much the assets are going to earn. -It is the inverse relationship between benefit liabilities and interest rates that have created a lot of bankruptcy litigation. -The way to reduce the unfunded benefit liability that you might owe PBGC is to reduce the benefit liability-one theory that gained a lot of traction was to reduce the benefit liability was to pick on the interest rate in calculating benefit liability (PBGC assumes a low rate of earning)not generally reflective of the rate that can be eanred in the private sector.-Interest rates affect tliabilties because the lower the rate the higher the liability the higher the rate the lower the liability-Starndard Terminations: Notice-Notice ofintent to terminate (NOIT) no later than 60- no earlier than 90 days before proposed DoPT-What this means is that you need to sit down with a calendar. If you issue the notice of intent at 59 days or 92 days before you dont have a valif termination notice and you MAY not have a valid termination without a valid notice. -You want to check it 2-3 times to make sure you are not imissing it-NOIT issued to affected parties (i.e. participants) beneficiaries (people who are collecting bnefits form the plan who arent participatnsspouses, kids, former spouses under a QDRO), unions, alternate payees (beneficiaries) but not PBGC-NOIT has to tell the affected parties that the PBGCs guarantee will end if the plan terminates. That is an important point that the PBGC added during the years because there came a timeif youve watched Wall Street they dealt with Blue Star Airliens because it had an overfunded pension plan, and there were leveraged buyouts done so that investors could get their hadns on them.-That wasnt abusive per se, but some of those companies chose insurance providers that werent well rated, i.e. Equitable Life Insurance Companywhich failedand so the plans were left without the promised benefits. The whole point of Title IV was to make sure the Studebagger didnt happen again. So what has been added to the standard termiantoin processyou have to notify people.-One of the remeidies that people could see for the equitable life abuse was to require on the standard termination that PBGCs gurantee ends in the standrds termination.-Standard Terminatoin Notice (on PBGC form 500) within 180 days AFTER proposed DoPT- Notice of plan benefits no later than form 500-Before or concurrently with filing form 500, many times apply to the IRS for determination letter-You want to know that it is FINALLY terminated and you are not going to have to dael with potentially adverse rulings from IRS or PBGC-Considerations before filing NOIT-Amend the plan to permit lump sum distriubtions-Otherwise, irrevocable commitments-If you have a plan that does not permit lump sum pametns and you want to do it to reduce the cost of termination, you will have to amend the plan before you issue the NOIT to permit the lump sum distribution-Amend to remove non-protected benefits-Do that before NOIT-Freeze accruals of benfits under ERISA 204(h)-Some people slipped intho the shoddy practice of using the same letter to say plan is frozen and termination will happen. It must be clear that whether the plan terminates or not benefits will be frozen. If it looks like in the letter that the benefit freeze depends on the termination that is the problem-The easiest way to do this is to issue two different letter. You hate to elevate form over substance: but if the participant has two letters in their hands they wont conclude hat oen benefist with the other-PBGC Review-Once PBGC has its NOPV it has a review periodit is 60 days but the PBGC will extend that-PBGC will say it is NONC (noncomplint, NONCed it) if it determines:-Plan assets are not sufficient for benefit liabilities-Plan admin didnt comply with procedural requireemtns-not within 60-90 days-Voluntary termionaton would violate an existin CBA-Issuane fNONC result in ongoing plan-Standard Termination: Ditstributionof assets-Distriutibution should occur as soon as practicable following PBGCs review (180 days by reg to distriubute assets unless waiting for an IRS determoiant letterbut general guideline is ASAP after review)-You want to look at the plan beforehand, because at this time you CANT change anything. They are now IRREVOCABLE COMMITMENTS, and in doing that fiduciaries have to comply with the safest available standard-Annuities (irrevocable comitments)-Lump Sums 0f plna permits lump sume-Other permitted forms-MORE INFO ON SLIdE-Post Distriubtion Audits-Automatic for plans covering more thn 300 participants-Common Issues:-Failure to use the correct interst rate (used an unreasonbyl high interst rate) in calculating lump sum distriubtions-Distriubtions of assets without filing for 500=PBGC may issue NONC during post distriubiotn audits to carry out purposes of Title IV-Tax conseqeunces for participatns-Statute of Limitations-DISTRESS TERMINATIOSN (DT) 4041(c)

-Basic Requiremests-Timely notice this is still an employer issued termination-Plan administer satisfies the information requiremnts-Adminstor carries the burden of proof for DT test for each control group member-PBGC determines that each person who is a contributing s[onsor or member fo the controlled group meets one of the four DT tests-DT Notice-Notce of intetn 60-90-NOIT to affected party-Contents of NOIT 29 CFR 4041.43(b)-Must give PBGC notice at this time on Form 600in a standard termaiton wouldnt have to do this because PBGC would not be called upon-Effect of notice-Plan Adminsitro must carry out normal duties-No extraordinary acts by the plan after it issues the NOITso for starters a plan administrator has to keep peforming his or her duties. -Distriubtions in annuity form only no lumps-They cant even go buy annuities, have to play from plan assets-After proposed DoPT, benefits adjusted to PBGC levels-So there could be an immediate eaffect on the participatns just be filing the NOIT-Information REquriemnts-Form 601 an dactural schedule (EA-D), no later than 120 days fter proposed DoPT-Information needed to determine whether plan assets are sufficient ofr guaranteed benefits-If so, plan administror will close out the plan under procedures for standard termination-If not, PBGC will complete the termination udner 4042-So a guaranteed benefit sufficient plan will close out in the private sector-If the actuary determins the plan will be sufficient, the plan will still closeout in the priaate sector-If the actuary or PBGC concludes it ois insufficient then PBGC takes over-BREAD AND BUTTER: Distress Tests. Each Member of the Controlled Group msut satisft AT LEAST ONE of the tests.-If there is one control group members that cant satisfy any of the tests it will not termaoitne-Liquidation in Bankruptcy-REorgniation in BRanktupct-Inability to Conitnue In Business-Declinign Workforce

-Distress Test Table Slid-Sponsor reorganizing in bankrpuct along wth 2 control group members-A defunct member is a shell corporation-the fourth member of the control group which is foreign satisfies the inability to continue test-Dsitress Termioant: Test 1-Cases under Bankruptcy Code Chapter 7 or Chapter 11 (liquidating)-Chapter 11 is generally a reorganization mechanicsm. So in the bankruptcy world chapter 7 ar ealways liquidationmarchallled and liquidated to creditsors. There are also liquidating chapter 11, both qualify for this distress test.-In this test, the bankruptcy court approval is not required-So if they can show that they really are liquidating in bankruptcy they may not need to get involved in it-It can alos be satisfied if there is a similar proceeding under state law-Assignemnt for the benefit of cerditors under stae law-Note that the termination premium does not apply for terminations udner test 1 - 4006(a)(7)(A)-if the company is liquidating, it will not be around to pay termination premiums-Distress Test 2: Reogniztion in Bankruptct Court (usually ch 11)-Bankrupcy Court msut decide issue of fact:-Unless the plan is termiantie, the debtor will be unable to pay all debts under any plan of reorganization and continue in busiens outside bankrucpy-THE ANY is satisfiedwhether there is no plan of reognization is feasiable that would allow them to continue-A but for test of causation-But for termination of the plan, willt he debtor continue to exist-The debtor may first have to reject or modify its colecitve barginaing agreement under 113 of Bankruptcy Code-There have been any number of bankrupcties where the reason of bankruptcy had nothing to do with the cash flowthey have jut taken out too much debtthe debt may have matured to a point where ti is an impediment to the country growing or competing with its major competitiors. -That kind of debtor may not need to show that is why it needs to get out og brankrupct-Bankrupcy court must approve the termination, but PBGCs determination under 4041(c) is the final step-IMPORTANT AND EASILY MISSED IDEA IN A CONTROL GROUP: If there is only one entity, usually the bankrupcys court finding under test 2 answers the 4041(c) riddle as well. But, if there are MULTIPLE control group members and one of them or two of them but not all of them hanve a bankruptcy court filing that they must reorgznie that doesnt mean that the PBGC will have to terminate-EX: Enron, you have 1 or 2 organizations in brakrupcy, but have an out of bankruptcy can support it. They could say that hey cant continue the plan and emerge fmor abrnkupcy, but the PBGC can say that he bankruptcy court has made a finding but not every control group members has satisfied the distress test.-Multiple Pension Plans-PBGCs position: tets are a papplied on aplan b y plan basis-Each plan must be a distress showing-A showing of sever business hardship.-Imagine debtors having a number of plans, some biger soms smallerthe company may not be able to support the plan that require greater resources but may be able to support ones that have lesser-Third Ct: PBGC v. Kaiser (2006) A plan-by-plan standard is unworkable-Costs of plans may be aggregated to meet test 2.-Sophies Choice-US Air Bky wanted to terminate all of its plans, there were multiple unions involved and some of the unions said that you could terminate this lpan but US Airs decision was that you can ttell us to keep one plan but not another-Kaiser says that the debtor doesnt have to make those choices, but you cant afford the whole nugget -Look through Hypo on Slides 27 an d28 and 29-Distress Test 3 Hot Topic A lot fo companies today that still have DB plans that cant afford them but dont want to file bankruptcy-It is an administrative decision within PBGC, meaning that the plan sponsor doesn tneed to let the world know that it is doing this. -Private company can do it without letting the world (Butzle Long sent out notices of intent to terminate andhas asked the PBGC to take over its plan it just cant afford its pension plan today)-The sponsor has to convince PBGC and PBGC must determine whether the sponsor will be able to pay its debts and continue its business whther the plan is termanited. It is a lot like bankruptcy, except the PBGC is the one to make the decision.-all of the membres of the control group must satisfy the testthere is a but for test of causation. If the person is unable to pay ites debts and continue its business regardless of whtehr the test is terminated the PBGC amy find that th test is not satised-The PBGC thinks that the business is in just terrible straits that it may not be able to terminate in a distress termaitno-The sponsor may ask for reconisdiearoin 29 CFR 4003.1(a), (b)(3)-Distress Test 4 Never has Been Used, Maybe-Adminsitrive Proceeding within PBGC-PBGC msut determine whether the costs of proviging pension coverage has become unreasonbel burden,som SOLELY as a result of decline of a psonsors workforce-The costs becoming unreasonable burdensome SOLELY bcause of decline is hard to meet. You need to think of arguments of why it has not just become too burdensome because there is less cahs in the bsuesinss.-INVOLUNTARY PBGC TERMINATIN 4042

-PBGC initiated Termioant-Discretioanry and mandatory criteria-Advance notice to participants or emplyoers is not required-PBGC is not required to notify anyone in adanve of its pcionts-PBGC may proceed without a CBA-Some courts will review PBGCs determinations under an arbitrary and capricious standard, lmited to the adminsitraive recors; others (7th Cir and UAL) say de novo-Sometimes the standard of review ends up being the issue in the case -In United Airliens 7th Cir said de novo review - so that the district court can weigh evidence just like the PBGC-PBHEC-initativd ivnolutnary criteria-Discretionary-failure to meet the minimu funding sntasrds-The plan will be unable to pay benefits hwn due-The plan has distrubted $10k or more to a subatantialowner-This is probably not a big deal todaythat has been in the statute for years.-But if you are in this world you dont want to give this to the PBGC. You dont want to leave an easy one like this.-The possible long-run loss of the corpoatoin amy reaosnbly be expected to increase unreasonably if the plan is not termioated-The standard asks whether the possible long-run loss to the PBGC may be reaonbly be expected to increase nreasonbly if the plan is not terminated-We are talking about long run loss not immediate loss, not loss to participants not loss to particiapts-Everey sponsor may fail at some pointso it would prove too little to shoe that there is a possible long run loss-Thse starndard is the it may REASONABLY be expected to INCREASsE UNREASONABLY-So we are drawing a reasonable expectation that there may be a long run loss, and that it may be an UNREASONABLE increase in long run loss-Mandatory-The plan has run out of asstes to pay benfits currently due-PBGC0initated termination (a)(1)-Discretinatry 4042(a)(1)-Failure to meet minimum funding standarsd-Missed quarterly contibutions: failrs to meet (a)(1)-No IRS funding deficnency-If the company THEN misses the catch up contribution, THAT generates the PBGC termination-PBGC usually uses the 4042(a)(1) along with other grounds-It will say it missed a YEARLy payment AND something else happened.-PBGC-initated termination (a)(2)-The plan will be unable to apy benefits when due 4042(a)(2)-Inability because of actual or imminent abandonment-Inability because plan will, within a reasonable period of time, run out of assets to pay benefits-Compare with amndatory tremiations-If PBGC gets wind of it soon enough, they can see that the plan is going to run out of money in 6 motnhs it is dsitrcerionatryor, it has run out of money after 6 motnhs and that is a mandatory termiantion-Factors-Significantly underfunded-Failrue or inability to make minimum contriubtoins-Benefit payments will exhaust remaining asets in forseeable future-Long run Loss (a)(4)-Will the transaction or event substantially increase PBGCs liabilities-Sponsor is about to do something (sell all assets, something is happening at the sponsor level that the BPGC can be concerned about)-Will it likely reduct PBGCs abailty to collect termination liability-Nothing is going to happen to the sponsor, but it has 5 contorl group membres and all 5 of them are going to be sold or it will be stirtutbued to shareholders int hat it takes them out of the control grou-Basis of PBGCs Early Warning Program-Slide 39 Typical PBGC Concern Issues-Exampees UAL Case-PBGC initaed Termioatn-Mandatory- plan dose not have asset to py-How does PBGC become staturyo trustee in involuntary termioations?-PBGC may terminate the plan by agreemwnt with the plan administer-If PBFC and the lpan adminstaro are unable to agree-PBGC commences action in district corut-Dopt 4048

-Whyi s DoPT important

-Date of plan tremiain 4048-Volunatry-Stadnrd: date proposed by plan admin-Distress date proposed by PBGC-Involutnray-Date propsed by PBGC and agred to by the plan adi-Absent agreement, the date esbliahed by court-Mandarorywhen assets are excausted

-Court Established DoPT-No earlier than when participants expectations of a countinguin plan are extinguished-How can reaosnble expectations be extinguished?-Acutal notice sale of assetse, cessstioan of business, chapter 7 petition-Courts dont require perfection here, and if that is the standard than PBGC cant take action-Construbtive notice 0 e.g. publication in newspapers-The publication in newspapers Is basically a legal fiction and most courts saw through it. -After particianpts expectioan are extinguished, whatever date serves PBGCs intersts-The employers intersts are irrelevant-There are cases on this where the employer wants their interstcourt said no, PBGCs interst-Restoration 4047-Is when PBGC determines that a pension plan that is being terminated or has been termianated should nto be based on the stadnarsd that the PBGC considers relevant-They can issue a termination or issue a sponsor issued temriaton and stop if it finds some abuse and the plan should not be terminated or it can restore the lpan-Limited Use of 4047-Has been abused to prohibit abusive follow on plans-UAL: A plan that wraps around the federal insurance program and gives current and retired employees substantially the same benefits they would have enjoyed had the original plan not been terminated.-You are going to terminte the horribly underfunded plan and send that off to the PBGC and then build a benefit structure AROUND what the PBGC is going to pay-This is abusive-If a company is going to terminate a plan, conintue to exist, and continue to have a retirement plan, it sohudl be a plain vanilla 401(k) plan-PBGC v. LTC Corp-Is THE restroration case-Class IV-Title IV liabilite-Reversoins-Asset allocation-Fiduciary issues-Class 4 2/7/13 Allocations of Assets, Termination Liabilities, Reversions, and Fiduciary Responsibilities-Review-Voluntary Terminations (Sponsor Initiated)-Standard terminations-Distress Terminations-Title IV as the Sup Ct has said is the exclusive means of terminateing a single employer benefit plan (and likely for a multi-employ plan, but they are NEVER teriminated by the PBGC)-Involutnary terminations (PBFC-initiated)-Discretoinary-Mandatory-Date of Plan Termination-Trusteeship-Restoration-Overview of Class IV-Asset Allocation-Essential to giving people some context for what it means as a plan ends as an ongoing plan and becomes a part of the PBGC-Liabiliities Arising from Terminating an underfunded plan-Unfunded benefit liabilities-Shortfall and waiver amortization charges-Minium funding contriubtions-Evade or avoid liability-PBGC just filed a new lawsuit becuas esomen went through a corporate transaction and said they would do one thing, and then at the end did something different. And so PBGC is now having to take a plan Serebus. -Termination premiums-Reversions (of plan assets)-Fiduciary responsibilities-Timeline-4044(a) Asset Allocation-title IV benefit means:-A PBGC guaranted benefit (AMP) PLUS any additional benefits to which the plan assets are allocated under section 4044(a) - @( CFR 4001.2-This can be a real wonky areas. If ouy get into a discussion about what happens if the PBGC takes over a plan. Talking about PBGC benefits is DIFFERENT than Title IV benefits.-The owners benefit may be far and excess of the PBGC guarantee of a closely held corporation. So the owner in that situation amy talk to you about the PBGC guarantee, so now you can tell the person that the PBGC guarantee benefit is below the plan benefit. -But, you Title IV benefit might return the rest of it-It is essentially taking the PBGC piece and adding ot it other benefits that would not be guaranteed by the PBGC-When a company is in its death throes, as people are leaving is that companies are sending people off to retirement to give them benefits. Sometims using DB plans. If the plan provides benefits in the form of a lump sum, as the company is trying to get older workers who are usually more costlythey are doing it by using the plan assets and allowing these odler workers to take their benefit in a lump sum you are leaving less benefits in the plan-This is more of a concern under Title IVthe Title IV benefit is the PBGC benefit plus stuff that is not guaranteed but what plan assets will apy-What happens when a lot of those assets go out the door to people who were not yet retirement elegible-People in lower PCs are taking plan assets and you are paying a -Benefits and assets are valued as of DoPT-The present value of benefits calcuatele don the basis of PBGC assumptions-Plan assets are valued at the FMV-If one of the assets consists of a lottery ticket and it hits and it wasnt worth tht on DoPT that is just a gain for the PBFC-And if it loses, it is a PBGC loss-Asset Allocaiton 4044(a)-On termination, plan assets must be allocated (differentiated form distributionis only a bookpeeing concept where money is earmed but not distributed) to participants in the following order. PC stands for Priority Category.-PC 1: Benefits from voluntary employee contributions-PC2: Benefits from mandatory employee contributions-PC3:=PC4:-PC5:-PC6: All other benefits-Plan assets may not be allocated to a lower category until the benefits in the next higher category are satisfied-No assets will pour into PC2 until PC1 is satisfied-Sources of Plan Assets for Allocations-Two sources of assets for allocations-Plan assets held by a plans trust on termination (less pre-termination liabilities)-Valuing assets is an exercise in meticulous recordkeeping and judgment. If shortcuts are taken in an evaluation then people can suffer harm.-Less Pre-Termination Assets-We are not talking about benefit liabilitieswe re talking about assets that have liabilities. If the plan bought into a real estate trust, mayn times those assets come with asset call obligation or even more liquid types of investments will require an exit fee-So when allocating the assets, the assets are only as valuable as they are at market value minius the liabilities that are associated with them-Assets derived from PBGCs post termination recoveries-4022(c); Participants Share PBGCs Recovery (SPAR Recovery Ratio)-Provides partial recovery of non-guaranteed benegits (NGB) when PBGC has recovered som assets on the plans claims-To calculate the particpants share-NGB under plan * applicable recovery ratio-That recovery ratio applies to all plans terminating in a particular year, and is determined years later on how PBGC collected claims this yaer.-Lets say the PBGC took over 200 plans and its best recovery was 15% of claims and 1% in some other barnkuptcy, but maybe on average it recovered 7%--that is going to be the small plan recovery ratio and apply to the guarantee of benefits-So all of those participatns will get their BPGC benefits and the rest will get 7% of those non gurautneed benefits-If the on-guratneed benefits exceed $20 milionOnly for that plan-FORMULAS on SLIDE-PC1 and PC2PC1: Benefits derived from voluntary employee contribtuions-Treated as held in separate account-VERY RARE-May only be a couple of plans left like this-Prior to 401(k) in the tax code-PC2: Benefits derived from mandatory employee contirbutions-Mandatory plan contriubtions-Hughes v. Jacobsenone of the stron undercurrent and major beefs in the case, -Hughes changed benefit formula and began to tap into that surplus to provide benefits to other particiants, which is fine in a DB programbecause a participant had paid into it doesnt mean that they have a higher call-Then you get into Title IV and find out that when there are mandatory contributions and that effectively becomes a highest call on plan assets.-PC3-Congress policy decision that certain retirement elegible persons are preferred over the active workers-The retiree is retired. They are locked into that income. It is a big deal to tell someone who no longer has a means of making a living in the economy that we are going to cut against their income.-Allows recovery of non-guranteed benefits in an nderfunde plna-2 Step Processes:-Identify eligible participants-Those in pay status or eligible for pay status at the beginning of the 3 year bankruptcy endeing before DoPT-If plan terminates in bankruptcy, DoPT is bankruptcy petition date 4044(e)-Creats a lot of tense moments at the window before the company files for bankruptcy if the people running the retirement plan if they know it is going to be terminated and sent to the PBGC-You know that the satute is going to prefer the retiree and the people who will retire within 3 years-If you have someone coming to the window who is just coming to the window-You have to be eligible at the BEGINNING of the 3 year period, people who become eligible after tha are not in PC3-If termination is Fe 7 2013, if you were eligible for retirement on Feb7, 2010 you are in PC3-Compute benefit based on lowest benefit under plan provisiosn in effect for 5 years-EX:-Plan assets at DoPT: $118k-No benefit liabilities in PC1 or PC2-Present value of benefits in PC3-PC3 is 90% funded 118 /132-PC3 Example Slide-Zoe who was in PC3 for $48,000 would have been cut back to $720 if we were just allocating to PC3-Ned, who is going to get clipped, is still doing better than the PBGC benefit, so he gets the PC3 benefit-PC4-PBGC Guaranteed Beenfits, i.e. all nonforfeitable benefits under the plan after applying the AMP-Accrued at normal-Statutory maximimum-Phase in limitations-Benefits of majority owners that would be guaranteed byu for the phase in limits under 4021(b)(5)(B)-But assets are allocated first to the benefits of participatns whoa re not majority owners-Convoluted, but, it pushes the owners to the back of the line. It doesnt leave them out in the coldC could have just had no sympathy for owners. These majority owners get a guaranteed benefitbut in terms of allocating the assets in the plan, before the owner gets allocated the rank and file get first call on the assets-PC4 Ex:-Ned has accrued a benefit under Oldcos pension plan based on 20 yaers of srviece-PBGC initiates termination in 2012, and the plan administer signs a trusteeship agreement establishing June 30 as DoPT-Does he have a nonforetifable benefit If the plnas NRA is 65?-The concept of nonforefitability is that you met the plans requirements for retirement, and so he has a nonforfeitable benefit-WTF???-If the plan provi-PC5, PC6-PC5 All other nonforeitable benefits, not otherwise payable under PC1 through PC4-PC6 All other benefits-Non-VestedBenefits-Social Security Supplements-UCEBs-PBGC may find itself paying non-vested benefits or social security supplemetns if they can recover enough OR if these benefits are in 5 and 6 they are not guaranteed Small Plan Recovery may help you-Relevance of Section 4044(a) in ONgiong Plans-Any time a plan is involved in the kind of transaction that is covered by IRC 414(l)prevents people from being able to subvery the requiremetns of 401(a) by doing a merger-So 414(l) says that when the plan engages in a marger or transfer, you have to compare each partiicants benefit on a termianation basis immediately after the merger with the participants basis on a termination basis immediately BEFORE the merger-Benefits on a termination basis means the benfits that would be provided exclusively by plan assets under 4044-So no social security adjustemnts-If employee asks Am I going to be OK?-Have to come up with a different answer than youre fine. This could be a title 1 problem.-Termination Liabilities - 001(a)(16)-(19), 4006(a)(7), 4042(d)(1)(B), 4062, 4068, 4069-4062(b)(c)-Liability for unfunded benefit liabilities (whole enchilada)-Liability for shortfall amortization and waiver amortization charges-4042(d)(1)(B)(ii)-Liablity for amoutns due the plan, including due and unpaid minium fundinf contributions-shortfall amortization sounds like minimum fundion-MORE ON SLIDE-4062(a),(b): Liability for Unfunded Benfit Liabilitel-UBL: The xcess of the present value of benefit liabiltis on termination date calculated under PBGC assumptions over the value of the plans assets-We will talk about withdrawal liability next week-Joint and Seveal Liability-Contributing sponsor-All membrsof the SPONSORS CONTROLLED GROUP-PBGC Assumptions-PBGCs calculation of UBL-Intended to replicate the price of purchasing annuities in the private market-There has been a push-pull with the bankruptcy bar with what interst factors should be sued in calculating the unfunded benefit liabilities-PBGC goes out to insurance companies and cleanses all of the identifying information from the submissions it gets to the insurance companies-IT will ask them about the prie of varying kinds of annuities.-Key Role of PBGCs Assumptions-You cant calculate the liability without calculating the interest factor-By reducing the interest rate assumption from 8.75 to 6.4 (or 235 basis points) increases the liability from 16.5 to 49.7 million-Prudent Investor Rate - $1.8 million = 10% rate-Lien for Liability 4068-When companies dont pay the liability under 4062, after demand, a lien arises in favor of PBGC on all property of liable persons (control group)-Limit-Amounts due and owing and lien are limited to 30 percent of the collective net worth of all persons described in section 4062(a) PBGC can demand only the amount of the liability that exceeds 30% of net worth. That amount is immediately due and payable and PBGC can demand that. The rest is still due, but has to be paid under commercially reasonable terms. If $5 is immediately payble and there is a line for $5.-The whole amount is owed, but what is DUE and PAYABLE immediately is up to 30% of net worth, the rest is still owed but not immediately. -A contributing sponsor or a member of the contributing sponsors controlled group-Colelctive net worth means, generally, the sum of POSITIVE individual net worths-So if you have a negative net worth, it is just $0-Makes PBGC more likely to collect liability-Section 4062(c) -Technical corrections necessary -There are 2 spearate claims for the same liability in Title IV of ERISA and both of those liabilities are also subsumed in the amount of unfunded benefit liabilities.-So you ahv this claim for unfunded liaiblities. -PPA amended 4062(c) The amendment was intended to change the wording and preserve liability. It was just meant to reflect changes on the funding side-It used to impose liability for the accumulated funding deficiencies i.e., the excess of charges over credits in a plans funding standard account (FSA) at plan year end-PPA eliminated the FSA for single-employer plans, the basis for computing a plans minium funding contributions-Quareterly installemtnts of minimum funding contributions wre usually required, with a catch-up payments due 8 motnhs after end of plan year-This used to create an accumulated funding deficiency-But now under PPA, we talk about the plans funding target or FTAP. -A plans FT is the present value of all benefits accrued before the frist day of the plan yaer (this sounds a lot like value of benefit liabilities). So before PPA this was done on the basis of contriubtoins you missed-So post-PPA congress now says that the lcaim is goig to be for funding target-If the plans FT exceeds the plans assets, the plans minimufm funding contribution is limited to simply normal csot plus shortfall amortization charges and waiver charges

-Shortfall amortization charge-Amortizigiont of waiver charge-Minium Required Contribtuion-Target Normal Cost-PV of benefits expected to accrue during plan year-Plan-related expenses paid from plan assets-Shortfall amortization charge-Funding Shortfall (FS) = FT Plan Assets (less prefunding balances)-FS amortized over seven years in level annual installmetns-So every year the sponsor has to pay the plan the target normal cost PLUS 1/7th of the amount that represents the total benefit promise minus the assets-Minimum required contributions must be made within 8 months after the close of the plan year-Plans having a FS for preceding year must make quarterly contriubtions-Unpaid wautererly contribuoin accrues interst at the plans funding rate plus 5 points-Review: A statutory lien arises when the aggregate unpaid contriubtions exceed $1 million-Section 4062(c): after PPA-Liability to PBGC, as statutory trutee, for the following sum-Shortfall amortization charge (FS), and-Waiver amortization charge-So not only does the sponsor owe the unfunded benefit liabilities, ti also owes for the funding shortfall-So instead of changing the terminology they changed the character of the liability-So Funding-Related Liability to PBGC for:-Minimum required contriubtions under a statutory trustee 4042(d)(1)(B)(ii) that is still owed, so every one of those misses gives rise to a calim that the PBGC trustee can claim-And ALSO under 4062(c) has a claim for a funding shortfall-Congress did not mean to give to the PBGC 3 claims that overlap-The statutory scheme before PPA was to give them a lciam for the total UBL plus a claim for the unpaid amoutns-But in effectuating the change to the funding rules and trying to reflect that, they added this liability that grossly exceeds the true measure-4069 Now PBGC has a lawsuit about this-Enacted to preclude employers from avoiding termination liability by transferring underfunded pension plans to undercapitalized company-Elements of liability-A principle purpose (not THE principle purpose) of any person in entering into any transcation s to evade liability under Title IV-You did all of this to egt off the hook now you are right back on the hook-Slide 34 EX-Termination Premiums 4006(a)(7)-General Rule-If the plan terminates in either a distress or voluntary termination, then the sponsor has to pay 3 annual installment payments in the amount of $1,250 times the number of participatns immediately before termination-The sponsor has to pay $3,750 times the number of participants-The liability arises immediately after the bankruptcy discharge-If the idea is to bring mony into PBGC and give it a claim that can result in tis collection, a bankrupt company is going to pay in tiny bankruptcy dolalrs. If all you do is give PBGC one more claim, a termination premium is not going to be seen as a big deterrent, but if you say that the liability doesnt arise until discharge, then the reorganized company is being created with that liability.-Reverions 4044(d)-A plan sponsor can bring the assets back to the company after a plan termination if all benefit liabilities have been satisfied, it is not contrary to law, and if the plan PERMITS reversions (there were a number fo plans that went into termination mode and wanted to get money back, but the plan didnt provide it, and the cases were all over the board as to whether it was allowed). Now you will see that provisoin in most plans that are drafted today.-Excise Taxes -Of all of the obstacles that become an issue in a portential reversion is the showstopper-Thereis a 50% excise tax of 50% of the reversion-You are doing this to get what is back in the plan, but you only get back half of it because you have to pay a tax on half of it-20%, if the employer establishes a qualified rplacement plan-Fiduciary REsponbiilites-The Title 1 definition of fiduciary is revolving, and the DOL is changing the definition of fiduciary to EXPAND it-The entities that are fiduciary are going to be more after the DOL comes out with its regs. The rationale is that the DOL definition of fiduciary.-If you exercise authority or control respecting the managemtn or disposition fo plan assets you are a fiduciary.-Why is that important in Title 4?-Settlor decisions and fiduciary activities-The decision to terminate was a settlor decision, so if there is going to be a decision about reversions, that is a decision about plan assets-Allocation decisions are a core fiduciary responsibilityif you are the person monkeying with plan assets, you are probably acting as a fiduciary-Selecting annuitiesInterst rates in calculating the lump sums on distrubiotns-Beck v. Pace Read-PBGC is not a fiduciary but can sue fiduciaries-PBGC Can Bring Actions ans a Stauttory Trustee for Fiduciary Breach-Remedies-Civl Actions for damages and injunctive relief-4003 of ERISA-Beenfit offses udner ERISA 206(d)(4)-2/14/13 Class 5 Mutli-Employer Plans: Complete Withdrawal, Partial Withdrawal, Exemptions, and Transactions to Evade or Avoid Liability Next 3 Weeks-Whats Hot-Healthcare Reform-Fiduciary Issues-401(k) plans and Revenue Sharing-With a DB plans the assets are professionally invested and are held in trust. And as the assets perform the trust improves or erodes. The professionals are compensated for their work and the plans suffer all of the benefit or detriment of their investments-401(k) plans tend to be self-directed vehiclesso as the 401(k) plans offer participants the menu and as the mutual fund takes the plan assets and invests them in whatever the funds focus would be, there were all sorts of fees associated with mutual funds. -There are managmenet fees 12(b)(1) fees, floating fees -As the IRS herded people towards prototype plans-Complete Withdrawal ERISA 4203-Remember-In single employer plan world, plans terminate, single employer takes over a planhell to pay-Multiemployer plans CAN terminate, but termination is not the big event. There are consequences to termination. In the multi world, it means it has become a wasting trustthere arent contributiosn beign made by workers and the fund is just sitting there to pay benefit liabilities: unless it can find a way to close out in the private sector-It doesnt mean the end of the mutl-employer plan and PBGC DOESNT TAKE OVER mutl-employer plans-The real issue happens on withdrawal-The mutli-employer plan has many sources of revenueso one employer leaving the fund is not a major event in the life of the fundat least in theory. It has all of these sources of revenue and contribtuions.-So the issue is when they have withdrawan. The emplyeor may withdraw but the plan still exists, the board still runs the plan, the plan makes its benefit payments, just because one employer leaves it doesnt mean that it is necessarily moribound or it is the end of that fund.-Comlpete Withdrawal is the END of the employers experience in the fund-Remember when we talk about employerit is the control group-Keep that in the back of your mind. The employer for mutli-emplyeor withdrawal liability means the controlled group. You can have a parent and subsidiary both contributing to the fund and both singing off and will look like two different entities: in the mult-employer world they are one in the same employer.-Complete Withdrawal IS Permanent Cessation of 1 of 2 things:-1. Obligation to contribute to the plan OR-2. All covered operations under the plan-One usually means the otheror involves some aspect of the toherbut this is the definition. -Prof cant think fo an example of one but not the other-There are special rules for construction, trucking and other industries-Know they are out there. Just because you are dealing with a trucking or construction company doesnt mean you are dealing with those rules. Those rules apply to PLANS that are primarily in those industries. -The Obligation to Contribute Can Arise Under ERISA 515, 4212(a)-If the obligation to contribute ceases there is complete withdrawl-So what doses it mean?-One or more collective bargaining agreements Class 1-MultiEmployer plans are DEFIND by CBAs. That is part of the definition. To have a multiemployer plan you have a plan that involves a CBA. If the definition of the plan involves a CBA that is obviously going to be one of the sources for the obligaoin to contribute-But that is not all-How does this all play out? In a single plan the actuary tells the employer what the minimum funding/funding target attainment percentage is/what the assets are, and therefore what its net underfunding is to fund on a 7 year schedule-In the multiemplyeor world that changes for the employer. You dont get the AFTAP Assets. Th actuary gives that information to the board of trustees, and they have to work with their employer base to get that requirement satisfied. If it doesnt there is going to be an excise tax on the employers-So when they tell them there needs to be $500k of contriubtiosn, then the board of trustees will set with the employerswhatever the workers are doing x some dollar amount, how many of those units each employer plans to have this year. The employers give that infomraoitn back, and there is an amount set and assuming those targets are met the plans funding account will be fine.-So the CBA reflects that. The employer will sign on the bottom line and say we will pay $1 per hour. -That is the obligation to contribute-NOT every employer will sign it. The national union will sign the agreementand then they will take the CBAs to the locals and the individual emplyoyers. The CBA is done, but they will get to sign a participation agreement. This is known as a short form agreement.-New employers may come into the plan and sign a memorandum of understanding with the union or the fund that they are abiding by the collective bargaining agreement that gives rise to an obligation to contribute as well.-Applicable Labor-Management Relationhs Laws-Taft-Hartley (etc) dont allow employers to just change the conditoisn of the work once the CBA is over. It will have a term and start on X date and end on X date, and when you get to the end date: the employer cant just go we arent putting anything into the fund. Just because the CBA expires doesnt maen that the employer gets to do whatever it wants.-ERISA 515: Years after signing the CBA and realizing it is miserably under-funded the employer wises up and says this is fraud, the union defrauded me, they told me the fund is fine. That CBA shoulndt bind me. 515 says that it may be and there may be remedies, but that doesnt erode the obligation to contribute, even if the employer is correct that it was induced by fraud to sign the CBA.-Covered Operations: If there are no more it is also complete withdrawl-Covered Operations are the operations that give rise to contributions-The term operations generally is regarded as the work done within the jurisdcitoin of the CBA, no matter who is doing it-In the single-employer context, PBGC loved these terms that are in multi-employer plans so much that it uses the term in operations and PBGC in its proposed reg calls it a set of activities that calls it an orgainziaotnally, operationally or fundcitonalyl distinct unit of the employer. -So operation is becoming a term of artit is used in the caselaw, PBGC is trying to define it in the old multi employer sections. -If it is hauling freight it is the freight hauling mechanisms, if it is shipsit is the port-Youll look in vain in the CBA for a tightly drafted provisoin that says what the jurisdiction of the Union is. But youll never find that cleanly in the CBA, but there is practice over the years that people know what the jurisdiction is. -So if the operation that you are looking at happens to go beyond the jurisdiction, the fund is the fund of local 1482and it generally covers the electricians in Baltimore and Hartford County and maybe a few in some other countries. You are left to piecing it together.-Generally is geographical jurisdictionbased on the unions jurisdiction.-Cessetation of VIRTUALLY ALL ocverd operations (e.g. you still have the janitors)-Lefisltaive history supports this-Cessation of ALL covered opertoins, no active workers-Iron Workes v. Allied Products-7th Cir: Are not dissimilar from Scalia (Posner) and they say ALL means ALL. They were not impressedif there are 1 or 2 workers left you dont have a cessation of operations.-But if you are sitting their with a board of trustees and they really want to get an employer but they know that there are still 1 or 2so all means all.-Permanance-Doesnt Mean Forever-IT doesnt mean that the factory burned down and there is no money to rebuild itbut it still has to be a permanent cessation-Facts and Circumstances Test-Relevant Consideration-Sale/Retantion of business facility-If it has been sold, how likely is it that you are going to have covered operations-Sale/retention of substantially all operating assets-The factory is not producing the widgets today but the stuff is still there-Auto Industry: Hot Idle Mode. The auto industry was renting out closed facilities in Lorraine and Akron and producint Accords, putting them on carriers, and shipping them.-So there was a halt called to production of SUVs. It did not mean that those faciltiies had permanently lcosed. The cessation probably went on but it was not a permanent closure of the facility-Revocation/Retntion fo government permits or licesnces-So if an entity has sold its facilities-Communciation from/notices provided by employres-Date of Withdrawal-Cuyamaca Meats v. Pension Funds READ IT-There is really no question that there is a withdrawal, but the question is WHEN there is a withdrawal.-This is the REAL question.-You dont get clean facts that tell you employer ceased operations on Day X-Slide 9-Contributions on March 1 Thery are due on the 1st-CBA expires March 31-Negotiations begin on new CBA-April 1 Contrubtion Is made-April 22 Emplyoer puts final offer on table and says that they are not going to make any more contribtuoisn to the planMay 1 Makes a contribution-May 5 It revises its final offer and says that it is going to make its contriubtions until August 1-May 22 There is an impassethe employer is now free to implement its revised final offer under labor law-June 1 Makes a contribution (remember revised offer says contribution to August 1)-July 1 First day of new plan year, and employer makes next contribution-Augaust 1 final contriubtoin-Parties agree; September 1 is date of thi-When is Withdrawal?-Caselaw says that employer and union cant agree to date of withdrawal. So August 1 is last contribution. Does it change your mind if I tell you that the employer withdrew on June 30 its withdrawal liability is $100k and if on August 1 it is $50k.-Wtihdrawal liability is calculated as of the last day of the previous plan year. So July 1 is a bewithching date. So withdrawals after July 1 you use the June 30 funding status of the plan, and if it is before hten you use the previous June 30. -In Cayamuca there had been a great return on lpan assest betweenCayamuca wanted to capture that asset appreciation. So it is heading into collective bargaining as March knowing that it wasnts that asset approved and it doesnt want to withdraw before July 1. IF it wtihraws before then it-They knew as long as they had an obligation to contribute it could tno be -PROBABLY BEST TO LISTEN TO ABOUT AN HOUR INTO CLASS HERE GOT DISTRACTED-The fundamental principle in all of these rules is that the employer should be neutral in this-Partial Withdrawal 4205-2 Types:-1. 70% Declien-2. Partial Cessation of Employers Contribtuion Oblgation-70% Contribtuion Decline -A 70% contribution delince partial withdrawal happens IF-Furing each plan year, in the 3 year testing period, the employers contribution base units do not exceed 30 percent of the employers contribution base units for the high base year. 4205(b)(1)-The high base year is the average of the two highest years within any given 5 year base period immediately preceding the beginning of the testing period.-Never guess what something means by the term that (C) has given it-3 Year Testing Period-The plan year being tested and the immediately preceding 2 plan years-Section 4205(b)(1)(B)(i)-Why is it 3 years? Employer is in control of whether it has complete withdrawal. It can pay the contributions, it can extend the CBA and can contribute. -So the employer may deduct the complete withdrawal and is back to a 70% contribtuoin declineit is either paying minimum funding contributions.-So if you are not paying your contributions as you historically have not been doing, you are not going to get nailed for 1 bad year-It Is 3 years during which the contribution based units you are testing against the high base year which are the 5 years immediately preceding the period, taking the 2 highet years, taking 30% and comparing 30% in the following 3 years-One begins where the other ends-Whever one is, the other is found adjacent to it-Slide 13: Contriubtion History for Employer X-Plan Years 1-10-Contribution Limits for Each YErs-The employer started at 130 and is down to 5. -You dont have a complete withdrawal when this is what you are staring at. If you are in yaer 10 you do nto have a complete withdrawal. There is still an obligation to contribute.-BUT, there is a huge decline130 down to 5-Is there a 70% declineover the 10 years, yes.-But this is not necessarily with the smoothing concepts1 year does not make a test period 3 years-You are going to test 10 9 and 8 to get to a 70% decline-There have to be contributions no more tha 30% of the high base year for those 3 consecutive years-32 30 and 5-So you test for the 3 year period. Then from that 3rd year, you look at the next 5 before it to find your high base year.-High base year is yerst 3-7-100 CBUS in 3 and 5-Add up and divide by 2 = 100-So high base year is 100-30% of 100 is 30, so you need to see contributions below 30-You have that in 10-9 and 8 you are ok-So no partial withdrawal-During each plan year in the 3 year testing period. The Contribution base units do not exceed 30. In Year 8 32 exceeds 30. So you FAIL the requirement that each year in the periodso it is not good enough to get a 70% decline.-If you are advising the employer in this scenario, you are telling the employer that the last 2 years meet the statutory requirement, except the fund would need 1 more year at 30 percent or below to impose liability.-IF you look at it, you are going to lose one of the 100 years when you go to year 11. So it is going to go down to 100 + 80 / 2 = 90 *.3 we are not in danger of a partial withdrawal in year 11 either. But at the end of 12 we might have a partial withdrawal if they continue to be bad year.-Partial Cessation of the Employers Contribution Obligation-2 Types:-1. If the employer ceases the obligation to contribute under one or more but not all of the CBAs IF the empoyer continues the same work in the jurisdiction of the CBA or moves the work elsewhere, or to another entity owned or controlled by employer-It is going non-union to get the work done-The CBA ended-2. Permanent cessation of the obligation to contribute for one or more but fewer than all facilities if the employer continues to perform work at the facility of the type for which the obligation to contribute ceased-Here it just closed the facility and moved to a facility that employs non union work-both of these are looking for work going non-union-The reality of today is it is not so much union vs. non-union, it is now US vs. Foreign Country.-Facilicology An installation at a single geographic location or a grouping of installations that is treated as an economic unit-What is a facility?-You cant know whether the 2nd test has happened unless you know what the facility is. -Facts and circumstances prevail-A single store ro factory lends itself ot a facility-A single division that porduces a consolidate difnanicl statement-Exemptions PBGC Opinon letters, 82-4, 82-40, and 91-3-In the multiemployer world the employer is the control group. It is not just the entity that appears on the CBA. It is that ENTITY and EVERY OTHER ENTITY that is in its control group.-Control Group Rules are bright line rules-The control group is the employer-Izzy Goldowitz: Pervasive concept in ERISA-IF you start with the idea that the emplyeor is all of that-No complete withdrawal upon a parents sale of stock of a subsidiary if the subsidiary had and continues tohave the obligation to contribute and has covered operations-Because the employer is all of the tntity. And as long as the subsidiary continues to make contributison and continues to be obligated to contribute, the employer is still contributing to the fund-We may have lost a piece of the employer and in the single employer world that can get PBGC all in a tizzy. -Here, the multiemployer plan sees solvent parent sell barely solvent subsidiary is the contributor to the multiemployer plan and they know every year that the parent has made a capital contribution to the subdiary, but the multi-emplyoer plan cant jump in and do a thing.-Technicalyl under the statute, after the sale, the employer is still contributing and still has an obligation to contribute so there has not been a omplete withdrawl-IF you read PBFC Op Lts 82-4: PBGC went on record and said no, that is not a complete withdrawal. And you wonder if in 2013 if they were re-visiting this. In 1982 they applied a strict reading of the staute.-Controlled Group Restructuring 4069 and 4218-Entities that result from the following types of restructuring are regarded to be the original employer. It can do all of the following things and ist still same employer:-change in identity, form, place of organization-liquidation into parent organization-merger, consolidation, or division-change to an unincorporated form of business-There is no withdrawal if there is no interruption in the resulting entitys contributions ro obligation to contribute-the mere change form Acme Corp to Acme LLC is disregarded. But the statute says that Acme LLC better behave and think that it is not going to pay contribtuoins anymore and wont recognize the CBA or make contriubtions or have covered operations-Then 4218 will say Acme LLC you are the same as Acme Corp and you withdrew. -The resulting entity inherit the contribution history of the previous employer-Sales of Assets Can be a Withdrawal-General Rule: There is a withdrawal upon the sale of substantially all assets of seller to purachser-True even if the purchaser takes SELLERs name, plant, employees and inventory and continues to make contriubtoin to plan-PBGC Op Ltr 82-40-The indestructability of contribution historybut it belongs to the legal entity the employer. If ACME corp sells assets to New Acme Corp and it is owned by different peoplethey are different corporations. Acme Corp still owns its contribution history, New Acme Corp doesnt own that.-You will see savvy practicioners attempt to use it. They dont see why it mattersbut what you are leaving the seller with is withdrawal liability. They will argue that they are signing the CBA that there is no withdrawal liabilityit DOESNT MATTER-Exception: No withdrawal upon sale of assts IF ERISA 4204-Purchase has an obligation to contribute for substantially the same CBUs as the seller, AND-Purchaser posts a bond equal to one years contributions AND-Contract of sale provides that seller has secondary liability if purchase withdraws within 5 years-Last point is vitally important for us. The K of sale must provide that seller has secondary liability. The Attorneys control the document.-The contract better say these things, if they dont, there is a deficiency in the document and that is malpractice.-IF you are representing the buyer and you want to leave the seller with withdrawal liability but oyu know you need to sign the CBA, you can try to not have those provisions in the sale document and argue what does it matter, we are going to sign the CBA and retain whatever. And If you can get that one over on it, you just left them with withdrawal liability.-Suspension of Contributions-If there is a withdrawal, there is no withdrawal due to a suspension DURING a labor dispute-There has been a work stoppage related to an impasse and as a result there is no work being preformed and as if there is no work being perofmed there is no contirubtion sbeing padi-The statute provides that there is no withdrawwl due to a suspension during a labor dispute-This suggests that there has been a work stoppage related to impasse-you cant amek it anymore and there is NO WORK being performed and the CBA says that you pay by work being performed-Transactions to Evade or Avoid Withdrawl Liability 4212(c)-the statute disregards ANY transaction if A principal purpose of the trnascatoin is to avoid Title IV liability-Cases look for economic substance to the transction-Then you are at risk of the transaction being disregarded-Cuyamaca Union argued that bad employer kept stringing us along for months, bargaining, contributing and even went to the tactic of putting a final offer on the table and revising it. But the court looked at what was going on there; were workers working? Yes. Were workers being paid? Yes. Were contributions being made? Yes. Was stuff being produced in the normal course? Yes. -So was there economic substance to what Cuyamuca was doing duringt heat time? Yes. IT wasns just being done to reduce Title IV liability-Even though the statute says A PRINCIPLE purpose, underline PRINCIPALthe employer CAN be motivated to reduce its liability, that is jut human nature and good prudent management. Business people are naturally trying to minimize expenses and maximize income. So trying to make money is not illegal, having a purpose in mind of avoiding liability is not illegalbut having the PRINCIPAL purpose is getting to the point of being disregarded.-Is there any substance there?-If you keep ALL production one more day to get into the next plan year that is substantive-BUT, if you tu kept the janitor or just produced the product with no buyer to just sell it as scrap-Those are the facts and circumstances that are central in this analysis. All of these cases are going to be motivated by a desire to reduce, evade or avoid some camont of withdrawal liability.-Class 6 2/21/13 Allocation of Unfunded Vested Benefits, Adjustments to Allocable Share, Free Look, and Abatement-LOTS OF MATH-Review of Class 5-Complete Withdrawal-Covered operations-Obligation to Contribute-Date of Withdrawal-Permanence-Partial Withdrawal-70% Decline-Partial Cessations of Obligation to Contribute-Exemptions-Changes in Control Group-How changing a control group doesnt lead to withdrawal generally-Selling assets does lead to withdrawal except if sale of assets is documented under 4204you do have an exemption to withdrawal-Types of Transactions to Evade Title IV Liability-Transactions Disregarded-Facts and Circumstances-Allocation of Unfunded Vested Benefits-Once you know that you have a complete withdrawal or a partial withdrawalnow you have fair warning that there is an important event under MEPA-This is the board of trustees of mutli-emplyoer fundFirst need to allocate unfunded vested benefits-UVB Unfunded Vested Benefits: Statutory deifiniton in 4217(c) speaks in terms of non-forfeitable benefits: were not talking about nonforfeitable in a single employer PBGC sense, this is more of a Title 1 Benefitso when the actuary cacluates what the plan-wide withdrawal liability is, it is not applying the non-forfeitable definitoint hat we would employ on the single employer side. So when we are talking about withdrawal liabilitythe statute talks about the value of non-forfeitable benefits, we are talking about unfunded bested beenfits.-This means the differences between:-The presence value of nonforfeitable benefits MINUS-Value of plan assets-What if plan assets exceed value of vested benefits? If that is the case, the multiemployer fund has no fund-wide withdrawal liability-There are only a FEW multi-employer funds that are not in asset insuffiency. If that is the case and you are an employer and you have expereiencd a withdrawal you stand a better chance of not having to pay an exit fee. If the fund is better funded the employer withdrawing from the fund stands a better chance of not having withdrawl liability. Just because there is no asset insuffiency at a aprticular point in time is not deteminiative in the multi=employer world.-So when they have experienced a withdrawl it is up to the trustees-Calculating the Present Value of Nonforfetiable Benefits-Value of the lump sum that would be sufficient to ay all vested benefits as they become due: How much money we are going to need TODAY to pay the promise throughout time knowing that we dont know when the promise will be fulfilled. As new entrants keep coming in, people keep working, all of that lends itself uncertainty. There are so many variables there that we need to make assumptions.-The actuary is going to make assumptions and has methods for avluaing liabilities. Some of the assumptiosn include mortality and interest rates.-Actuarial assumptions and methods - 4213(a)-Must be reasonable