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Employee Benefits Security Administration

Advisory Opinion

July 25, 2002

Ronald E. Richman, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
Michael S. Melbinger, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601-9703

2002-07A
ERISA Sec. 3(37)

Dear Messrs. Richman and Melbinger:

This responds to your request on behalf of the Anchor Glass Container Corporation (Anchor) and the Glass, Molders, Pottery, Plastics & Allied Workers International Union, AFL-CIO, CLC (GMP) for an advisory opinion under the Employee Retirement Income Security Act of 1974, as amended (ERISA). Specifically, you asked whether the Glass Companies Multiemployer Pension Plan (Plan) is a "multiemployer plan" within the meaning of section 3(37) of ERISA. For the reasons discussed below, the Department of Labor (Department) has concluded that the Plan is not a multiemployer plan within the meaning of section 3(37).

The following facts and representations are based on your submissions, as well as submissions of the Pension Benefit Guaranty Corporation (PBGC). Anchor has been in the business of making glass containers for over 50 years. During that time, Anchor has grown into a significant employer in the glass container manufacturing industry, in part through the acquisition of other glass container manufacturing companies. Currently, it employs approximately 3,400 workers. Anchor’s corporate headquarters are located in Tampa, Florida, and it has manufacturing operations in at least 10 other States. A Canadian firm, Consumers Packaging, Inc. (Consumers) owned, directly and indirectly, 60 percent of Anchor. Consumers also owned, directly and indirectly, 80 percent of GGC, L.L.C. (formerly known as Glenshaw Glass Company, Inc.) (Glenshaw). Glenshaw’s corporate headquarters are located in Glenshaw, Pennsylvania, and its only manufacturing operations are in that State. Glenshaw and its predecessors have been making glass containers since the early 1900’s.

On May 23, 2001, Consumers filed for protection under the Canadian Companies’ Creditors Arrangement Act with the Ontario Superior Court of Justice. As part of this proceeding, Consumers was to sell its interests in Anchor and Glenshaw. On April 15, 2002, Anchor filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code for the purpose of confirming its proposed Plan of Reorganization dated April 15, 2002.

Both Anchor and Glenshaw had long-standing, single-employer defined benefit pension plans. The Anchor Glass Container Corporation Service Retirement Plan (including predecessor plans) (Anchor Plan) was established in 1955. It provided benefits primarily to Anchor employees who were members of the GMP or the American Flint Glass Workers Union (AFGWU).(1)  The Anchor Plan covered approximately 14,000 participants. As of December 31, 2001, the Anchor Plan had unfunded vested liabilities of over $160 million. Similarly, the Glenshaw Glass Company, Inc. Service Retirement Plan for Hourly Rated Employees (Glenshaw Plan) provided retirement benefits to Glenshaw employees who were members of the GMP and the AFGWU. The Glenshaw Plan covered approximately 1,000 participants. As of December 31, 2001, the Glenshaw Plan had unfunded vested liabilities of over $8 million.

The Anchor Plan and the Glenshaw Plan were maintained pursuant to collective bargaining agreements with the GMP and the AFGWU. Historically, these parties have engaged in collective bargaining and reached agreements on a wide variety of employment matters, including employee benefit levels, over the course of several decades.

Anchor’s bankruptcy filing occurred, in part, due to its obligation to fund pension benefits that have increased steadily during the 1990’s. You indicated that the benefit increases resulted, in part, from "pattern bargaining" practices in the glass container industry. You represented that the pattern involves the GMP negotiating for wages, benefit increases, and other terms and conditions of employment with the primary employer in the industry and then seeking to impose those same terms and conditions when bargaining with the other, generally smaller, employers in the industry. You indicated that the industry’s primary employer was willing to agree to regular pension benefit increases because it could implement those increases for little or no cost due to its single-employer pension plan being substantially overfunded. You further indicated that after a decade or so of negotiated pension benefit increases, Anchor and the GMP agreed that Anchor’s financial condition would continue to deteriorate if the pension-related effects of pattern bargaining were not addressed.

Anchor, Glenshaw, the GMP, and the AFGWU concluded that merging the Anchor Plan and Glenshaw Plan to establish the Plan as a multiemployer plan would allow for continuation of pattern bargaining practices in the industry while ameliorating the financial effects on the secondary employers arising from the primary employer agreeing to negotiated increases in pension benefits. Specifically, with the establishment of the Plan, the GMP could continue to bargain with the industry’s primary employer on all employment issues, including pension benefit levels. When an agreement between those parties was struck, the union could calculate the actuarial cost of any pension benefit increases, express that cost as a monthly contribution rate increase, and negotiate that rate increase with Anchor and Glenshaw. Even though the Plan would inherit a substantial level of underfunding from the Anchor and Glenshaw Plans, as participating employers in a multiemployer plan, Anchor and Glenshaw would be able to limit their contributions to the Plan to the amounts agreed to in the collective bargaining process rather than having to make contributions sufficient to meet the minimum funding requirements otherwise applicable to the Anchor and Glenshaw Plans as single-employer plans under ERISA and the Internal Revenue Code.(2)

The Plan was established on December 31, 2001, pursuant to amendments to existing collective bargaining agreements between Anchor and Glenshaw and the GMP and the AFGWU. Specifically, the parties agreed to merge the Glenshaw Plan into the Anchor Plan and, simultaneously, to establish the Plan by amending and restating the plan documents. The parties also designated a board of trustees to assume sponsorship of the Plan and take control of the Plan’s assets and liabilities. Anchor and the GMP each appointed two trustees and Glenshaw and the AFGWU each appointed one trustee.

The Plan is currently funded through contributions from participating employers and investment earnings. Presently, the only two participating employers are Anchor and Glenshaw, although you indicated that the Plan is negotiating with two other unrelated employers about merging their single-employer pension plans into the Plan. Under their respective collective bargaining agreements, Anchor and Glenshaw are required to make monthly contributions based on a fixed amount per hour of service for each of their covered employees. In this regard, Anchor’s estimated annual contribution requirement for 2002 is approximately $12.5 million. But for the establishment of the Plan, however, Anchor’s accelerated deficit funding requirement under the Anchor Plan for 2002 would have been over $80 million. In fact, Anchor’s Disclosure Statement for its Plan of Reorganization states that, based on certain projections, without the successful establishment of the Plan as a multiemployer plan, the Anchor Plan’s underfunding would likely lead “to accelerated deficit funding requirements of Anchor Glass of $90 million, $40 million and $30 million in 2003, 2004 and 2005, respectively.”(3)

Section 3(37)(A) of ERISA defines the term "multiemployer plan" to mean a plan to which more than one employer is required to contribute, which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and which satisfies such other requirements as the Secretary of Labor may prescribe by regulation. Additional requirements were prescribed by regulation at 29 C.F.R. § 2510.3-37. Paragraph (c) of § 2510.3-37 provides, with respect to plans established on or after September 2, 1974, that a plan “must meet the requirement that it was established for a substantial business purpose.” In addition to recognizing that “[a] substantial business purpose includes the interest of a labor organization in securing an employee benefit plan for its members[,]” paragraph (c) sets forth four factors to be applied in determining whether a substantial business purpose exists, noting that any single factor may be sufficient.

For purposes of your request, we have assumed that the Plan is a plan to which more than one employer is required to contribute and that it is maintained pursuant to collective bargaining agreements between one or more employee organizations and more than one employer. At issue, therefore, is whether the Plan meets the "substantial business purpose" requirement of the regulation. Consistent with legislative intent, it has been the Department’s long-standing position that the establishment of a plan merely to obtain the statutory advantages of multiemployer plan status will not satisfy the substantial business purposes test.(4)

The four factors described in paragraph (c) of § 2510.3-37 to be considered in determining "substantial business purpose" are: (1) the extent to which the plan is maintained by a substantial number of unaffiliated contributing employers and covers a substantial portion of the trade, craft or industry in terms of employees or a substantial number of the employees in the trade, craft or industry in a locality or geographic area; (2) the extent to which the plan provides benefits more closely related to years of service within the trade, craft or industry rather than with an employer, reflecting the fact that an employee's relationship with an employer maintaining the plan is generally short-term although service in the trade, craft or industry is generally long-term; (3) the extent to which collective bargaining takes place on matters other than employee benefit plans between the employee organization and the employers maintaining the plan; and (4) the extent to which the administrative burden and expense of providing benefits through single employer plans would be greater than through a multiemployer plan.

On the basis of the facts and circumstances surrounding the Plan's establishment, the Department concludes that the Plan’s establishment as a multiemployer plan does not meet the "substantial business purpose" requirements of the regulation. With regard to factor one, it is the view of the Department that the number of participating employers, under the facts presented, do not constitute a substantial number of unaffiliated contributing employers. With regard to factor two, it does not appear that employee relationships with an employer maintaining the Plan are generally short-term. With regard to factor three, we note that, although the sponsoring employers and employee organizations bargain collectively on a broad range of employment matters, and have done so over many years, until now, such bargaining has always been in the context of maintaining single-employer plans. As a result, the Department can give little weight to this third factor as a basis for finding that the Plan is a multiemployer plan. Finally, with regard to factor four, the information provided to us about the administrative cost of maintaining the Plan relative to maintaining separate single-employer plans, does not indicate that the administrative burden and expense of maintaining the single-employer plans is significantly greater than maintaining a multiemployer plan. In fact, it appears that some of the projected savings could be realized through joint management of the single-employer plans. Moreover, it is difficult for us to conclude, on the basis of the information provided, that the significant reduction in funding and liability that would be achieved through operating under the statutory provisions governing multiemployer plans was not the primary factor in the establishment of the Plan. For these reasons, it is the view of the Department that the Plan would not constitute a "multiemployer plan" within the meaning of section 3(37) of ERISA.

This letter constitutes an advisory opinion under ERISA Procedure 76-1 (issued August 27, 1976). Accordingly, this letter is issued subject to the provisions of that procedure, including section 10 thereof, relating to the effect of advisory opinions.


Footnotes

  1. A plan covering certain Anchor salaried employees had been merged into the Anchor Plan in 1998, but the benefit levels in that salaried employee plan had been frozen since January 1, 1995.

  2. We note that PBGC’s maximum annual guarantee of benefits applicable to the Anchor and Glenshaw Plans if they terminated as single employer plans is currently $42,954. For multiemployer pension plans, the current monthly guarantee level is 100 percent of the first $11 of the plan-designated dollar amount multiplied by the participant’s years of service under the plan plus 75 percent of the next $33 of the dollar amount multiplied by the participant’s years of service. Accordingly, the benefit guarantee for a worker with 30 years of service in a multiemployer plan is $1,072.50 per month, or $12,870 per year.

  3. You recently indicated that based on recalculations made after filing the Plan of Reorganization the actual deficit funding requirements, although still quite substantial, may be lower than the projections in the Disclosure Statement.

  4. See H.R. Conf. Report No. 1280, 93rd Cong., 2nd Sess. 265 (1974); 39 Fed. Reg. 42234 (Dec. 4, 1974); Advisory Opinion 83-05A (Jan. 19, 1983).