29 USC 1362 - Liability for termination of single-employer plans under a distress termination or a termination by corporation

View all text of Subtitle D [§ 1361 - § 1371]

§ 1362. Liability for termination of single-employer plans under a distress termination or a termination by corporation

(a) In generalIn any case in which a single-employer plan is terminated in a distress termination under section 1341(c) of this title or a termination otherwise instituted by the corporation under section 1342 of this title, any person who is, on the termination date, a contributing sponsor of the plan or a member of such a contributing sponsor’s controlled group shall incur liability under this section. The liability under this section of all such persons shall be joint and several. The liability under this section consists of—

(1) liability to the corporation, to the extent provided in subsection (b), and

(2) liability to the trustee appointed under subsection (b) or (c) of section 1342 of this title, to the extent provided in subsection (c).

(b) Liability to corporation

(1) Amount of liability

(A) In general

(B) Special rule in case of subsequent insufficiency

(2) Payment of liability

(A) In general

(B) Special rule

(3) Alternative arrangements

(c) Liability to section 1342 trusteeA person described in subsection (a) shall be subject to liability under this subsection to the trustee appointed under subsection (b) or (c) of section 1342 of this title. The liability of such person under this subsection shall consist of—

(1) the sum of the shortfall amortization charge (within the meaning of section 1083(c)(1) of this title and 430(d)(1) 1

1 So in original. Probably should be preceded by “section”.

of title 26) with respect to the plan (if any) for the plan year in which the termination date occurs, plus the aggregate total of shortfall amortization installments (if any) determined for succeeding plan years under section 1083(c)(2) of this title and section 430(d)(2) of title 26 (which, for purposes of this subparagraph, shall include any increase in such sum which would result if all applications for waivers of the minimum funding standard under section 1082(c) of this title and section 412(c) of title 26 which are pending with respect to such plan were denied and if no additional contributions (other than those already made by the termination date) were made for the plan year in which the termination date occurs or for any previous plan year), and

(2) the sum of the waiver amortization charge (within the meaning of section 1083(e)(1) of this title and 430(e)(1) 1 of title 26) with respect to the plan (if any) for the plan year in which the termination date occurs, plus the aggregate total of waiver amortization installments (if any) determined for succeeding plan years under section 1083(e)(2) of this title and section 430(e)(2) of title 26,

together with interest (at a reasonable rate) calculated from the termination date in accordance with regulations prescribed by the corporation. The liability under this subsection shall be due and payable to such trustee as of the termination date, in cash or securities acceptable to such trustee.

(d) Definitions

(1) Collective net worth of persons subject to liability

(A) In generalThe collective net worth of persons subject to liability in connection with a plan termination consists of the sum of the individual net worths of all persons who—

(i) have individual net worths which are greater than zero, and

(ii) are (as of the termination date) contributing sponsors of the terminated plan or members of their controlled groups.

(B) Determination of net worthFor purposes of this paragraph, the net worth of a person is—

(i) determined on whatever basis best reflects, in the determination of the corporation, the current status of the person’s operations and prospects at the time chosen for determining the net worth of the person, and

(ii) increased by the amount of any transfers of assets made by the person which are determined by the corporation to be improper under the circumstances, including any such transfers which would be inappropriate under title 11 if the person were a debtor in a case under chapter 7 of such title.

(2) Pre-tax profitsThe term “pre-tax profits” means—

(A) except as provided in subparagraph (B), for any fiscal year of any person, such person’s consolidated net income (excluding any extraordinary charges to income and including any extraordinary credits to income) for such fiscal year, as shown on audited financial statements prepared in accordance with generally accepted accounting principles, or

(B) for any fiscal year of an organization described in section 501(c) of title 26, the excess of income over expenses (as such terms are defined for such organizations under generally accepted accounting principles),

before provision for or deduction of Federal or other income tax, any contribution to any single-employer plan of which such person is a contributing sponsor at any time during the period beginning on the termination date and ending with the end of such fiscal year, and any amounts required to be paid for such fiscal year under this section. The corporation may by regulation require such information to be filed on such forms as may be necessary to determine the existence and amount of such pre-tax profits.

(e) Treatment of substantial cessation of operations

(1) General rule

(2) Substantial cessation of operationsFor purposes of this subsection:

(A) In generalThe term “substantial cessation of operations” means a permanent cessation of operations at a facility which results in a workforce reduction of a number of eligible employees at the facility equivalent to more than 15 percent of the number of all eligible employees of the employer, determined immediately before the earlier of—

(i) the date of the employer’s decision to implement such cessation, or

(ii) in the case of a workforce reduction which includes 1 or more eligible employees described in paragraph (6)(B), the earliest date on which any such eligible employee was separated from employment.

(B) Workforce reduction

(D) DispositionsIf, whether by reason of a sale or other disposition of the assets or stock of a contributing sponsor (or any member of the same controlled group as such a sponsor) of the plan relating to operations at a facility or otherwise, an employer (the “transferee employer”) other than the employer which experiences the substantial cessation of operations (the “transferor employer”) conducts any portion of such operations, then—

(i) an eligible employee separated from employment with the transferor employer at the facility shall not be taken into account in computing a workforce reduction if—(I) within a reasonable period of time, the employee is replaced by the transferee employer by an employee who is a citizen or resident of the United States; and(II) in the case of an eligible employee who is a participant in a single employer plan maintained by the transferor employer, the transferee employer, within a reasonable period of time, maintains a single employer plan which includes the assets and liabilities attributable to the accrued benefit of the eligible employee at the time of separation from employment with the transferor employer; and

(ii) an eligible employee who continues to be employed at the facility by the transferee employer shall not be taken into account in computing a workforce reduction if—(I) the eligible employee is not a participant in a single employer plan maintained by the transferor employer, or(II) in any other case, the transferee employer, within a reasonable period of time, maintains a single employer plan which includes the assets and liabilities attributable to the accrued benefit of the eligible employee at the time of separation from employment with the transferor employer.

(3) Exemption for plans with limited underfundingParagraph (1) shall not apply with respect to a single employer plan if, for the plan year preceding the plan year in which the cessation occurred—

(A) there were fewer than 100 participants with accrued benefits under the plan as of the valuation date of the plan for the plan year (as determined under section 1083(g)(2) of this title); or

(B) the ratio of the market value of the assets of the plan to the funding target of the plan for the plan year was 90 percent or greater.

(4) Election to make additional contributions to satisfy liability

(A) In generalAn employer may elect to satisfy the employer’s liability with respect to a plan by reason of paragraph (1) by making additional contributions to the plan in the amount determined under subparagraph (B) for each plan year in the 7-plan-year period beginning with the plan year in which the cessation occurred. Any such additional contribution for a plan year shall be in addition to any minimum required contribution under section 1083 of this title for such plan year and shall be paid not later than the earlier of—

(i) the due date for the minimum required contribution for such year under section 1083(j) of this title; or

(ii) in the case of the first such contribution, the date that is 1 year after the date on which the employer notifies the Corporation of the substantial cessation of operations or the date the Corporation determines a substantial cessation of operations has occurred, and in the case of subsequent contributions, the same date in each succeeding year.

(B) Amount determined

(i) In generalExcept as provided in clause (iii), the amount determined under this subparagraph with respect to each plan year in the 7-plan-year period is the product of—(I) ⅐ of the unfunded vested benefits determined under section 1306(a)(3)(E) of this title as of the valuation date of the plan (as determined under section 1083(g)(2) of this title) for the plan year preceding the plan year in which the cessation occurred; and(II) the reduction fraction.

(ii) Reduction fractionFor purposes of clause (i), the reduction fraction of a single employer plan is equal to—(I) the number of participants with accrued benefits in the plan who were included in computing the workforce reduction under paragraph (2)(B) as a result of the cessation of operations at the facility; divided by(II) the number of eligible employees of the employer who are participants with accrued benefits in the plan, determined as of the same date the determination under paragraph (2)(A) is made.

(iii) LimitationThe additional contribution under this subparagraph for any plan year shall not exceed the excess, if any, of—(I) 25 percent of the difference between the market value of the assets of the plan and the funding target of the plan for the preceding plan year; over(II) the minimum required contribution under section 1083 of this title for the plan year.

(C) Permitted cessation of annual installments when plan becomes sufficiently fundedAn employer’s obligation to make additional contributions under this paragraph shall not apply to—

(i) the first plan year (beginning on or after the first day of the plan year in which the cessation occurs) for which the ratio of the market value of the assets of the plan to the funding target of the plan for the plan year is 90 percent or greater, or

(ii) any plan year following such first plan year.

(D) Coordination with funding waivers

(i) In general

(ii) Notice

(E) Enforcement

(i) NoticeAn employer making the election under this paragraph shall provide notice to the Corporation, in accordance with rules prescribed by the Corporation, of—(I) such election, not later than 30 days after the earlier of the date the employer notifies the Corporation of the substantial cessation of operations or the date the Corporation determines a substantial cessation of operations has occurred;(II) the payment of each additional contribution, not later than 10 days after such payment;(III) any failure to pay the additional contribution in the full amount for any year in the 7-plan-year period, not later than 10 days after the due date for such payment;(IV) the waiver under subparagraph (D)(i) of the obligation to make an additional contribution for any year, not later than 30 days after the funding waiver described in such subparagraph is granted; and(V) the cessation of any obligation to make additional contributions under subparagraph (C), not later than 10 days after the due date for payment of the additional contribution for the first plan year to which such cessation applies.

(ii) Acceleration of liability to the plan for failure to pay

(iii) Civil action

(5) DefinitionsFor purposes of this subsection:

(A) Eligible employee

(B) Funding target

(6) Special rules

(A) Change in operation of certain facilities and property

(B) Aggregation of prior separationsThe workforce reduction under paragraph (2) with respect to any cessation of operations shall be determined by taking into account any separation from employment of any eligible employee at the facility (other than a separation which is not taken into account as workforce reduction by reason of subparagraph (C) or (D) of paragraph (2)) which—

(i) is related to the permanent cessation of operations of the employer at the facility, and

(ii) occurs during the 3-year period preceding such cessation.

(Pub. L. 93–406, title IV, § 4062, Sept. 2, 1974, 88 Stat. 1029; Pub. L. 95–598, title III, § 321(b), Nov. 6, 1978, 92 Stat. 2678; Pub. L. 96–364, title IV, § 403(g), Sept. 26, 1980, 94 Stat. 1301; Pub. L. 99–272, title XI, § 11011(a), (b), Apr. 7, 1986, 100 Stat. 253, 257; Pub. L. 100–203, title IX, § 9312(b)(1), (2)(A), (B)(ii), Dec. 22, 1987, 101 Stat. 1330–361; Pub. L. 101–239, title VII, §§ 7881(f)(2), (10)(A), (B), 7891(a)(1), Dec. 19, 1989, 103 Stat. 2440, 2441, 2445; Pub. L. 109–280, title I, § 108(b)(4), formerly § 107(b)(4), Aug. 17, 2006, 120 Stat. 819, renumbered Pub. L. 111–192, title II, § 202(a), June 25, 2010, 124 Stat. 1297; amended Pub. L. 113–235, div. P, § 1(a), Dec. 16, 2014, 128 Stat. 2822.)