Company Supports Proposed Regs on Suspension of Pension Benefits

ABF Freight System, Inc. ("ABF") commends the Department of the Treasury and the Internal Revenue Service for promptly issuing the February 11, 2016 proposed regulations (the "Proposed Regulations") interpreting the allocation of suspensions of multiemployer pension plan benefits among participants and beneficiaries pursuant to section 432(e)(9)(D)(vii) of the Internal Revenue Code (the "Code"). ABF believes that the Proposed Regulations correctly reflect the language and the intent of the statute, and urges that the Department promptly finalize rules that mirror the Proposed Regulations.

Background

ABF is the largest contributor to the Central States, Southeast and Southwest Areas Pension Plan (the "Fund"). More than 8,000 former ABF employees and 4,800 current ABF employees have accrued benefits under the Fund. Thus, the continued viability of the Fund, and its ability to provide meaningful retirement benefits, is critical to ABF.

ABF, which has been in continuous operation since 1923, provides interstate and intrastate service to more than 44,000 communities in the United States. ABF has more than 11,500 employees and provides high-paying middle-class jobs for these employees. Pursuant to its labor agreements with the International Brotherhood of Teamsters, ABF contributes to 26 multiemployer pension plans. Over the last 10 years, ABF has contributed more than $1.23 billion to the Fund to help provide retirement security for its Teamsters-represented employees.

As you know, on September 25, 2015, the Fund submitted to the Department a rescue plan under section 432(e)(9) of the Code for permission to suspend benefits of participants in order to avoid insolvency of the Fund. Although we would prefer that the Fund were able to pay all benefits that have accrued over the years, we believe that the Fund's rescue plan satisfies all applicable statutory requirements and should be approved by the Department. We communicated our support of the rescue plan to Secretary Lew in a letter last month.

We understand that the Proposed Regulations were issued in response to the comment letter by United Parcel Service. Inc. ("UPS") opposing the Fund's rescue plan, as well as other allegations by UPS that the rescue plan does not satisfy applicable legal requirements. In fact, we are not aware of any other employer that is impacted by the rule under section 432(e)(9)(D)(vii) of the Code.

The context surrounding UPS's complaints is helpful. The Multiemployer Pension Reform Act of 2014 ("MPRA") was enacted after many months of deliberation and several Congressional hearings addressing how to allow critically-underfunded multiemployer plans to engage in self-help to save themselves. Absent drastic action, many multiemployer plans, including the Fund, are on a clear and unavoidable path to insolvency. Plan insolvency would be disastrous for affected participants and their surviving spouses, and would quickly lead to the insolvency of the Pension Benefit Guaranty Corporation's multiemployer plan insurance fund. The Congress correctly concluded that allowing suspensions of benefits was preferable to this outcome.

UPS and its lobbyists were heavily involved in the process leading to the enactment of the MPRA. Among other things, UPS was a part of the coalition that issued the "Solutions not Bailouts" report that suggested the legislative structure that led to the MPRA. In fact, UPS was a signatory to that report.

In addition, in the days leading up to the enactment of the MPRA as part of the "Cromnibus" bill, UPS sought to have the legislation provide the result it now is seeking through its written opposition to the Fund's rescue plan and (we expect) forthcoming comments on the Proposed Regulations. However, UPS's efforts were rebuffed by the Congress, with section 432(e)(9)(D)(vii) of the Code being enacted in its final form despite UPS's entreaties. Thus, UPS is seeking a second bite at the apple to obtain an "interpretation" that the statutory language means what UPS was unable to convince Congress to implement in the first instance.

The reason UPS is seeking this result relates back to its complete withdrawal from the Fund. In connection with its withdrawal, UPS agreed to "backstop" the pension benefits of thousands of UPS employees, so that any reduction in pension benefits payable from the Fund would be made up by the new UPS single-employer pension plan. Thus, UPS wants to minimize the Fund's pension reductions for its active and former employees because, for each dollar of cuts affecting participants covered by the backstop, it will have to make up the difference.¹

We believe that the Fund's rescue plan application demonstrated beyond any reasonable doubt that the proposed benefit suspensions are necessary to avoid the Fund's insolvency. Thus, the key issue that the Proposed Regulations would clarify is how the benefit suspensions must be allocated. If UPS gets its way, then Fund participants in "subclause II", many of whom are retired and live on fixed incomes, would experience larger benefit reductions than under the proposed rescue plan, while many UPS participants would experience smaller or no reductions (i.e., less would have to be made up by UPS for its employees covered by the make-whole agreement). In other words, UPS effectively is attempting to shift costs from itself to thousands of Fund pensioners and their surviving spouses. It would be unfair if the language of the MPRA mandated this result. Fortunately, it does not.

Analysis

The standard rules for statutory construction mandate the conclusion reached by the Department and the Service in the Proposed Regulations. Specifically, UPS's argument would make "to the maximum extent permissible" in clause (I) superfluous. In addition, as noted in the preamble to the Proposed Regulations, when the Congress wishes to provide that reductions are to be applied in a specific order, it uses those words or something closely analogous. Cf. 29 U.S.C. § 1344(a). The lack of those words is telling, and there no evidence to indicate it was anything but intentional.

"It is an elementary rule of construction that effect must be given, if possible, to every word, clause and sentence of a statute." U.S. v. Menasche, 348 U.S. 528 (1955). Courts construe a statute to give effect to all of its provisions, so that no part of the statute is inoperative or superfluous, unless a provision is the result of obvious mistake or error. American Nat'l Red Cross v. S.G., 505 U.S. 247 (1992). Courts assume that every word, phrase and clause in a statute is intended and has some meaning, and that none was inserted by accident. Chickasaw Nation v. U.S., 534 U.S. 84 (2001).

In this case, UPS's proposed reading of section 432(e)(9)(D)(vii) is utterly inconsistent with the plain language of the statute. In subclause (I), "to the maximum extent permissible" clearly means that all benefits of subclause I participants must be reduced as much as permitted under the statute (i.e., to 110% of the PBGC-guaranteed benefit, subject to some exceptions based on age and status). Only after subclause I benefits are reduced as much as legally permissible can any other category of benefits be touched.

On the other hand, subclause (II) does not include that language or anything similar. It merely provides that any reductions "shall be applied to all other benefits that may be suspended". In light of that language, there is no reasonable argument that the benefits of subclause II participants must be reduced to the maximum extent permitted by the MPRA before subclause III benefits may be reduced at all. Rather, the most reasonable reading of the language is the one propounded in the Proposed Regulations and explained in their preamble -- subclause II benefits cannot be reduced by less than subclause III benefits for an otherwise similarly-situated participant. UPS was well aware of this issue, which is why it lobbied unsuccessfully for different language in what became section 432(d)(9)(vii) of the Code.

Further, we agree with the analysis in the preamble to the Proposed Regulations that, had Congress intended to provide that all subclause III benefits be reduced "to the maximum extent permitted", another way it could have done so would be to state in the introductory language that benefits will be suspended "in the following order". But, Congress did not include that language, and there is no reason to believe that was an oversight.

In sum, we believe that the Department and the Service cogently laid out the reasons why the statutory interpretation described in the Proposed Regulations is correct. The reading proposed by UPS would do violence to the plain language of the statute. And, although not directly relevant to the interpretation of the statute, UPS's proposed reading also would result in even larger pension benefit cuts for already-vulnerable Fund participants and their surviving spouses who happened to work for an employer that has continued to contribute to the Fund after UPS's withdrawal.

Conclusion

We believe that the Proposed Regulations correctly interpret the MPRA. ABF would prefer a different allocation of benefit suspensions, one where the benefits of current and former employees of employers that have stuck with the Fund would not be cut at all. However, that is not what the MPRA provides, and ABF is satisfied that the allocation methodology in the Proposed Regulations reflects the plain language of the statute.

We urge the Department and the Service to quickly finalize the Proposed Regulations. This is not a matter of academic interest. The Fund has made clear that, if the proposed rescue plan is not implemented, the best case scenario would be even larger benefit cuts. The more realistic scenario may be the Fund can no longer do anything to avoid insolvency. More than 80% of the Fund's participants will be better off with the rescue plan than without it. In addition, if the rescue plan is not approved and implemented by December 31, 2016, it may no longer be possible to save the Fund. Ultimately, that would result in the Fund becoming insolvent, with benefit reductions to zero or near zero for all participants and their beneficiaries with no PBGC backstop. In that event, only the UPS participants reflected by the make-whole agreement would be protected; the vast majority of Fund participants would have no protections at all. It is inconceivable that Congress could have intended this result

Finally, if UPS requests to testify at the March 22, 2016 public hearing on the Proposed Regulations, we urge that the Department and the Service ask UPS's representative how much money UPS will save if its proposed interpretation were accepted. As noted above, every dollar of lower benefit reductions for subclause III participants, many of whose benefits are backstopped by UPS, would directly lead to higher reductions for subclause II participants. Fundamentally, UPS is asking that subclause II participants suffer in order to augment its bottom line.

Thank you for your consideration of our views, and we are happy to discuss any questions you may have.