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Fund Supports Proposed Regs on Suspension of Pension Benefits

MAR. 15, 2016

Fund Supports Proposed Regs on Suspension of Pension Benefits

DATED MAR. 15, 2016
DOCUMENT ATTRIBUTES
  • Authors
    Nyhan, Thomas C.
  • Institutional Authors
    Central States Pension Fund
  • Cross-Reference
    REG-101701-16 2016 TNT 27-11: IRS Proposed Regulations.
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2016-5662
  • Tax Analysts Electronic Citation
    2016 TNT 52-23

 

March 15, 2016

 

 

The Honorable Jacob J. Lew, Secretary of the Treasury

 

CC:PA:LPD:PR(REG-101701-16)

 

Room 5205

 

Internal Revenue Service

 

P.O. Box 7604

 

Ben Franklin Station

 

Washington, DC 20044

 

Re: IRS REG-101701-16 -- Comments on Proposed Regulations Relating to the Additional Limitation on Suspension of Benefits Applicable to Certain Pension Plans Under the Multiemployer Pension Reform Act of 2014

 

Dear Mr. Secretary:

Central States, Southeast and Southwest Areas Pension Plan ("Central States" or the "Fund") appreciates the opportunity to provide comments to the Department of the Treasury and the Internal Revenue Service (the "Department") on the proposed regulation (the "Proposed Regulation")1 under section 432(e)(9)(D)(vii) of the Internal Revenue Code of 1986, as amended (the "Code"). On September 25, 2015, the Board of Trustees of Central States filed an application (the "Application") to reduce benefits under the Multiemployer Pension Reform Act of 2014 ("MPRA"). As stated in the Application, Central States is a plan described in Code section 432(e)(9)(D)(vii).2

I. Background

Code section 432(e)(9)(D) imposes a series of limitations on benefit suspensions otherwise permitted under MPRA. The first six of these limitations are summarized below:

  • § 432(e)(9)(D)(i) -- Monthly benefits cannot be reduced below 110% of the amount guaranteed by the Pension Benefit Guaranty Corporation ("PBGC").3

  • § 432(e)(9)(D)(ii) -- Age-based protections apply on a prorated basis for participants between ages 75 and 80 as of the effective date of suspensions, with full protections for participants over 80 years of age.4

  • § 432(e)(9)(D)(iii) -- Benefits based on disability may not be suspended.5

  • § 432(e)(9)(D)(iv) -- Suspensions of benefits, in the aggregate, must be reasonably estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency.6

  • § 432(e)(9)(D)(v) -- If applicable, benefit suspensions cannot take effect prior to the effective date of a plan partition.7

  • § 432(e)(9)(D)(vi) -- Benefit suspensions must be equitably distributed across the participant and beneficiary population,8 taking into account various factors.9

 

The Proposed Regulation is based on the seventh and final limitation under section 432(e)(9)(D) (the "Tiering Rule"), which applies only to certain plans, including Central States.10 This provision is set forth in its entirety below.

 

(vii) In the case of a plan that includes the benefits described in clause (III), benefits suspended under this paragraph shall --

(I) first, be applied to the maximum extent permissible to benefits attributable to a participant's service for an employer which withdrew from the plan and failed to pay (or is delinquent with respect to paying) the full amount of its withdrawal liability under section 1381(b)(1) of this title or an agreement with the plan,

(II) second, except as provided by subclause (III), be applied to all other benefits that may be suspended under this paragraph, and

(III) third, be applied to benefits under a plan that are directly attributable to a participant's service with any employer which has, prior to December 16,2014 --

 

(aa) withdrawn from the plan in a complete withdrawal under section 1383 of this title and has paid the full amount of the employer's withdrawal liability under section 1381(b)(1) of this title or an agreement with the plan, and

(bb) pursuant to a collective bargaining agreement, assumed liability for providing benefits to participants and beneficiaries of the plan under a separate, single-employer plan sponsored by the employer, in an amount equal to any amount of benefits for such participants and beneficiaries reduced as a result of the financial status of the plan.11

In the paragraphs below, we refer to benefits attributable to each of the three clauses under Code section 432(e)(9)(D)(vii) as "Tier 1," "Tier 2," and "Tier 3" benefits, respectively.12 The Proposed Regulation provides guidance relating to the allocation of benefit suspensions among the three Tiers, and in particular between Tier 2 and Tier 3. For the reasons explained in Section II below, the Proposed Regulation reflects a reasonable construction of MPRA's Tiering Rule.

II. The Proposed Regulation Reflects a Reasonable Interpretation of MPRA

A. The Proposed Regulation Correctly Does Not Require Maximum Suspensions to Tier 2 Benefits Prior to Suspension of Tier 3 Benefits

The Fund agrees with the Department's conclusion that "the best interpretation of section 432(e)(9)(D)(vii) is that a suspension need not be applied to the maximum extent permissible to benefits described in [Tier 2] before any suspension is applied to benefits described in [Tier 3]."13 This conclusion is required by the plain text of section 432(e)(9)(D)(vii), which applies the phrase "to the maximum extent permissible" to Tier 1 benefits, but not to Tier 2 benefits.14 That several independent groups have publicly taken the same view on this issue lends further support to the Department's conclusion.15

The only commenter to hold a contrary view is UPS.16 As explained in the Fund's March 1, 2016 comment letter, UPS ignores the clear import of the absence of the phrase "to the maximum extent permissible" from Tier 2. It does so because, in its view, that language is unnecessary since Tier 2 includes "all other benefits that may be suspended under this paragraph[.]"17 This does not follow. Each tier, of course, defines the benefits included within it. To state (correctly) that Tier 2 includes "all other benefits" not included in Tier 1 or Tier 3, however, says nothing about the extent to which those benefits must be reduced. The phrase "all other benefits" answers the question of "what benefits" but leaves unaddressed the question of "how much." Tier 1 includes "how much" language -- "to the maximum extent permissible" -- but Tier 2 does not. This silence forbids reading in a requirement where Congress has not included one.18

In any event, the remainder of this Section II focuses on the approach reflected in the Proposed Regulation, as well as the alternative rule discussed in its preamble, neither of which requires maximum suspensions to Tier 2 benefits before any suspensions to Tier 3 benefits.

B. The Proposed Regulation Correctly Requires the Application of a Suspension to Tier 2 Benefits to be "Greater Than or Equal To" the Application of the Suspension to Tier 3 Benefits

While MPRA does not require Tier 2 benefits to be suspended "to the maximum extent permissible," some differentiation between Tier 2 benefits and Tier 3 benefits is necessary to give meaning to the ordinal terms "First," "Second," and "Third" used by Congress to describe the tiers.19 The approach reflected in the Proposed Regulation strikes the appropriate balance between giving effect to the statute's use of ordinal language and recognizing the absence of the phrase "to the maximum extent permissible" from Code section 432(e)(9)(D)(vii)(II).

A bedrock principle of statutory interpretation is that various provisions of the same statute are to be read together as a "coherent regulatory scheme," and that a proper construction must "fit, if possible, all parts into an harmonious whole."20 Thus, while a specific legislative provision may be motivated by different considerations than those underlying the broader enactment, the provision must be construed so as to mitigate any potential conflict with broader congressional goals.21 For example, in Pilot Life Ins. Co. v. Dedeaux,22 the Supreme Court was asked to interpret a particular ERISA provision known as the "saving clause." Speaking for a unanimous Court, Justice O'Connor explained that "we are obliged in interpreting the saving clause to consider ... the role of the saving clause in ERISA as a whole. On numerous occasions we have noted that in expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy."23

Congress's central purpose in enacting MPRA was to permit multiemployer pension plans facing insolvency to take the necessary steps, including suspending benefits to the extent required, to ensure their ability to pay some benefits to participants and beneficiaries long into the future.24 In furtherance of this central purpose, MPRA provides plan sponsors with broad discretion to allocate benefit suspensions,25 subject to certain narrow limits,26 as long as the suspensions are equitably distributed among the plan's participants and beneficiaries.27

In its preamble to the Proposed Regulation, the Department suggests that a distinct purpose of the limitation under Code section 432(e)(9)(D)(vii) was to prevent a plan sponsor from designing benefit suspensions to impose a greater benefit reduction on any given participant solely because the reduction to that participant's benefits would be covered under a "make-whole agreement" of the Tier 3 employer.28 By requiring that Tier 2 benefit suspensions be "greater than or equal to" Tier 3 benefit suspensions, the Proposed Regulation fully achieves the specific purpose underlying Code section 432(e)(9)(D)(vii) without undermining the central purposes of MPRA described above.

In contrast, the alternative approach discussed in the preamble to the Proposed Regulation ("Alternative Rule")29 oversteps the specific legislative intent behind Code section 432(e)(9)(D)(vii) in a manner that conflicts with MPRA's overall purposes. Beyond merely preventing the imposition of disproportionate cuts onto Tier 3 benefits, the Alternative Rule would require a plan sponsor to favor Tier 3 benefits at the expense of Tier 2 benefits. Such a result could not be reconciled with the requirement that benefit suspensions be equitably distributed across the participant and beneficiary population.30 The Fund therefore requests that the Department reject the Alternative Rule and incorporate the Proposed Regulation's "greater than or equal to" approach in the final rule.

C. The Proposed Regulation Correctly Applies a Participant-by-Participant Test

Under the Proposed Regulation, the Tiering Rule is satisfied if no participant's benefits that are directly attributable to service with a Tier 3 employer are reduced more than that participant's benefits would have been reduced if, holding constant the benefit formula, work history, and all other relevant factors used to determine the individual's benefits, those benefits had been attributable to that participant's service with any other employer.31 Because this test is consistent with the text and legislative purpose of the Tiering Rule, the Fund urges the Department to adopt this test without change in the final rule.

As discussed in Section II.B, supra, the Tiering Rule places a limit on the amount of suspensions a plan sponsor may apply to benefits that are protected by an employer's make-whole agreement, while still ensuring that benefit suspensions are adequate to allow the plan to remain solvent. The participant-by-participant test in the Proposed Regulation furthers this purpose by comparing each participant's respective suspensions as if the benefits being suspended were attributable to service with a Tier 3 employer or some other employer.32

In a March 1, 2016 letter filed in reference to the Fund's Application, UPS argued that the Application does not comply with the Proposed Regulation because of certain alleged aggregate effects of the Application's benefit suspension formulas.33 As an interpretive matter, the Proposed Regulation provides no textual basis for UPS's argument. The text of the Proposed Regulation is perfectly clear that the relevant comparison is at the individual level, not at the aggregate level: "This requirement is satisfied if no participant's benefits that are directly attributable to service with an employer described in paragraph (d)(8)(i)(C) of this section are reduced more than that participant's benefits would have been reduced if, holding the benefit formula, work history, and all relevant factors used to compute benefits constant, those benefits were attributable to service with an employer that is not described in paragraph (d)(8)(i)(C)."34

Moreover, as a policy matter, the aggregate approach favored by UPS would have the effect of overriding the multitude of equitable considerations that Congress included in MPRA on the basis of extrinsic demographic factors. The individualized focus of these legislative guideposts is strong evidence that Congress did not envision aggregate comparisons.35 For example, if a plan happens to have twice as many benefits attributable to service with Tier 3 employers as to service with other employers, then even if the plan applies an identical suspension formula to all benefits, a comparison of suspensions in each Tier on an aggregate basis would indicate that the impact of suspensions on Tier 3 benefits is twice as large as the impact on other benefits.

Similarly, an aggregate comparison would be skewed by the application of mandatory age and disability protections to individuals within each Tier. If 20% of Tier 2 benefits, but only 10% of Tier 3 benefits, are subject to MPRA's age-based protections, then a greater percentage of Tier 3 benefits would be suspended than Tier 2 benefits, even assuming identical suspension formulas for all participants in all Tiers. Nothing about Code section 432(e)(9)(D)(vii) suggests that Congress ever imagined that such an aggregate standard would apply.

D. Limiting Tier 3 Benefits to those Covered by a Make-Whole Agreement Furthers the Purposes of MPRA

The Proposed Regulation interprets Code section 432(e)(9)(D)(vii)(III) as including in Tier 3 all benefits that are associated with an employer that satisfies the applicable requirements, even if the make-whole agreement does not cover all such benefits.36 This interpretation is at odds with the purpose of MPRA, which is to permit plans facing near-term insolvency to adopt equitable benefit reductions that will allow the payment of benefits to continue long into the future.

Taken to the extreme, the approach reflected in the Proposed Regulation would mean that an employer with thousands of employees could backstop pension benefits for only a small handful of individuals in order to trigger a restriction on how the plan sponsor of the multiemployer plan treats the employer's entire workforce. This imbalance is an absurd result that cannot be reconciled with any conceivable intent of Congress. As a result, the interpretation in the Proposed Regulation is unsupportable.

If we accept the notion that the purpose of Code section 432(e)(9)(D)(vii) is to prevent a plan from unreasonably shifting costs onto a make-whole agreement, then any reasonable interpretation of this section must limit its effects to benefits that are actually covered by the agreement. There is no rationale for treating an employee who was excluded from the make-whole agreement any differently from an employee of a company that did not provide a make-whole agreement. Each of these employees is equally exposed to the effects of the benefit suspensions, and each of their employers is equally shielded from any costs resulting from the suspensions.

The most logical reading of the statute37 is that the phrase "directly attributable to a participant's service with any employer" in Code section 432(e)(9)(D)(vii)(III) refers only to participants who are covered by the make-whole agreement described thereunder. This interpretation aligns the population that is affected by the make-whole agreement with the population that is afforded special treatment. It also fully protects the employer that adopted the make-whole agreement from an unreasonable cost allocation, while imposing the minimum possible restriction on the trustees of the plan when trying to place the least possible burden on retirees.

E. Even if Tier 3 Includes Benefits Not Covered by a Make-Whole Agreement, the Application Complies with the Proposed Regulation

Even under the interpretation in the Proposed Regulation that classifies all benefits attributable to service with UPS as Tier 3, the Application fully complies with the requirements of Code section 432(e)(9)(D)(vii). All UPS employees have a proposed benefit reduction that is either less than or equal to the proposed benefit reduction that would apply to an otherwise identical non-UPS employee, as discussed more fully in Section III.A, infra. The Application thus clearly satisfies the requirements of the Proposed Regulation.

III. The Application Filed by Central States Complies with the Proposed Regulation

A. No Tier 3 Benefits Are Suspended to a Greater Degree than Otherwise Identical Tier 2 Benefits

Central States' Application complies with the Proposed Regulation. Under the Proposed Regulation, all non-UPS participants fall under either Tier 1 or Tier 2, depending on their employer. A Tier 1 participant receives the maximum permissible suspension, so it is impossible for a larger suspension to be imposed on a similarly situated Tier 3 participant.38 The benefit reductions for Tier 2 participants provide that the post-reduction monthly benefit is equal to 1% of the contributions received on a participant's behalf, adjusted for early commencement and joint and survivor elections as appropriate. The 1% formula is reduced to 0.5% for terminated participants with less than 20 years of service, and a 50% maximum suspension cap applies to participants with 20 or more years of service.39 For Tier 3 participants who are covered by the make-whole agreement, the exact same formula applies, except that the 50% cap is reduced to 40%.40 This difference can only serve to lessen the amount of reduction that applies to these Tier 3 participants. For Tier 3 participants who are excluded from the make-whole agreement, the benefit reduction formula is identical to the Tier 2 formula in every respect. Taken together, this structure clearly satisfies the requirements of the Proposed Regulation because it is impossible for a Tier 3 participant to receive a larger reduction than a similarly situated Tier 2 participant.

As discussed in Section II.D, supra, the correct interpretation of Code section 432(e)(9)(D)(vii) is that Tier 3 includes only those benefits that are covered by the make-whole agreement. As such, the Application identifies the UPS employees who are included in the make-whole agreement as the entire Tier 3 population and provides these participants with a more favorable suspension structure than applies to Tier 2 participants. The Application classifies UPS employees who are excluded from the make-whole agreement as Tier 2 participants.

While the Proposed Regulation takes a different approach by classifying all benefits attributable to service with UPS as Tier 3, this does not cause the Application to fail to satisfy the requirements of Code section 432(e)(9)(D)(vii). As discussed above, the UPS employees who were excluded from the make-whole agreement have reductions that are not greater than those that apply to Tier 2, and in fact they are equal in all cases. The fact that the Application and the Proposed Regulation follow different definitions of the tiering structure is relevant only if the differences cause the Application to fail to comply with the requirements of the Proposed Regulation. That is not the case here. The Proposed Regulation contains very precise criteria for determining whether the reductions that apply to Tier 3 satisfy the Tiering Rule, and the Application satisfies these criteria.

B. The Application Does Not Impermissibly Discriminate Against UPS as a Tier 3 Employer

The proposed benefit cuts in the Application in no way allocate an unreasonable portion of the reductions to Tier 3 participants. On the contrary, as is discussed in detail in the Application,41 the distribution of the proposed suspensions results from the factors and principles contained in Code section 432(e)(9)(D)(vi).

The underlying suspension formula in the Application generally provides participants with a monthly post-suspension benefit equal to 1% of the contributions that the Fund has received on their behalf.42 Thus, each participant receives a benefit that is directly proportional to the contribution revenue that their employment generated. To the extent that some participants receive greater or lesser reductions than other participants under this formula, it is because the prior benefit formula favored certain groups of participants over others.43

An exception to the general suspension formula described above applies to terminated participants who have fewer than 20 years of service. For these participants, the benefit formula is based on 0.5% of contributions instead of 1%. In its March 1, 2016 comment letter to the Department, UPS alleges that the Fund's application of a different suspension formula to these participants ("0.5% Participants") impermissibly discriminates against UPS, and that this somehow violates the Proposed Regulation.44 For the reasons explained below, this aspect of the manner in which the Fund's proposed benefit suspensions are allocated is neither discriminatory nor in violation of the Proposed Regulation.

To begin with, since 0.5% Participants are not yet retired, most are likely to be currently employed and earning retirement benefits outside of the Fund from their employer.45 Moreover, the fact that they have fewer than 20 years of service indicates that they did not work a full career in the Fund, suggesting that they have earned (or will earn) significant retirement benefits with employers outside of the Fund.46 Further, most of these participants are substantially younger than typical retirees, which makes them more likely to be able to adapt to the benefit reductions.47 Each of these equitable considerations, expressly permitted by MPRA,48 supports the application of a more favorable formula to retired participants than to terminated participants with fewer than 20 years of service. After great consideration, the Board of Trustees decided that protecting the benefits of retirees and widows to the greatest extent possible was a higher priority than protecting the benefits of younger, non-retired participants who are currently employed elsewhere.49 In light of these equitable considerations, the Fund's proposed allocation of benefit suspensions is reasonable and fully complies with both MPRA and the Proposed Regulation.

For the reasons explained above, any disparity in the burdens of proposed benefit suspensions on different groups of participants is due to the application of neutral and equitable factors which Congress expressly permits a plan sponsor to consider under MPRA. And to the extent that these individual disparities result in additional obligations for UPS under its make-whole agreement, any "discrimination" of which UPS complains is the direct result of UPS's conscious decision to cover employees with certain demographics under its make-whole agreement. Notably, UPS's make-whole agreement did not cover any of its employees who retired prior to September 29, 2007, so very few UPS retirees are covered under the make-whole agreement. And because UPS's current employees were withdrawn from the Fund by UPS, UPS's make-whole agreement does not cover any active participants in the Fund. That UPS's make-whole agreement excludes the two main groups of participants who are most in need of protection in light of the equitable factors that Congress directed the Board of Trustees to consider in distributing benefit suspensions -- active participants and retirees -- in no way means that the Board discriminated against UPS in protecting those groups. Nor do the choices made by UPS in private contracts require or permit the Board to disregard the equitable factors in a federal law.

C. UPS Has No Disparate Impact Claim

As a last-ditch alternative argument, UPS latches onto a passing comment by the Department in the preamble to the Proposed Regulation to establish itself as a protected class of one, deserving the full armor of this nation's civil rights jurisprudence. To say the least, there is no indication that Congress -- or the Department, for that matter -- intended such an absurd result.

In describing its proposed rule that "a suspension would not be permitted to reduce benefits directly attributable to service with a subclause III employer, unless other benefits are first reduced and are reduced to at least the same extent," the Department noted that this rule would "protect[ ] a subclause III employer from the possibility that the suspension would be expressly designed to take advantage of the employer's agreement to make participants and beneficiaries whole for the reductions[.]"50 This comment is nothing more than an acknowledgment that Congress included a limitation in the statute that prevents a Tier 3 employer from bearing the entire weight of the plan's benefit suspensions.

Yet on the basis of this lone comment, UPS declares MPRA to be an "antidiscrimination" statute designed specifically for its own protection, on par with Title VII of the Civil Rights Act of 1964,51 or the Fair Housing Act.52 The entire purpose of those statutes is to protect the fundamental Constitutional rights of groups that have historically faced discrimination.53 The core of MPRA, quite to the contrary, lies in saving the pension benefits of individual retirees and beneficiaries -- not in helping a Fortune 500 corporation avoid the consequences of a bargained agreement it now regrets.

That UPS was able to lobby for some degree of protection from the possibility that Central States might impose more than a fair share of benefit cuts onto the participants UPS backstops does not mean that Tier 3 is an "anti-discrimination" clause. To discriminate means to treat similarly-situated individuals differently. Here, UPS is in a class by itself. There is no employer similarly situated to UPS that has received preferential treatment over UPS. It is certainly not "discrimination" to treat Tier 1 and Tier 2 employers differently -- they are differently situated and so the Fund must treat those employers differently, subject to certain guidelines included in the statutory test. Similarly, it is not discrimination to treat a Tier 3 employer differently, even if the statute contains some limitation on the extent to which the plan may allocate burdens to that employer.

Even if Congress had intended the Tier 3 statutory text to protect UPS from "discrimination," UPS's leap to disparate impact jurisprudence overlooks the fundamental reasoning behind the disparate impact caselaw. Recognition of disparate impact claims is a tool that courts use to effectuate anti-discrimination statutes in situations in which the purpose of the statute would be thwarted if a showing of discriminatory intent were always required in order for an individual to sustain a claim.54 In such cases, the member of the protected class already has the ability to bring a disparate treatment claim, and courts allow that member to prove discrimination based on impact rather than intent. Here, nothing in MPRA grants UPS a cause of action against Central States for violation of Tier 3's supposed anti-discrimination clause.

Moreover, even if UPS had a cause of action against Central States for explicit discrimination, it does not follow that it would have a cause of action based on disparate impact. Contrary to UPS's suggestion, not even every true anti-discrimination statute encompasses claims based on disparate impact. Instead, the courts must parse the language of each statute to determine a Congressional intent to allow claims based on discriminatory effect rather than discriminatory animus. Indeed, even with respect to Title VI of the Civil Rights Act of 1964 -- whose explicit purpose was to remedy discrimination -- the Supreme Court concluded that claims under one section of Title VI may be brought only for intentional discrimination, while claims under a different section of the same title may be based on disparate impact. Alexander v. Sandoval, 532 U.S. 275, 280-81 (2001). Just five years after the Supreme Court first recognized a claim based on disparate impact, it held in Washington v. Davis, 426 U.S. 229 (1976), that constitutionally-based discrimination claims may not be based on disparate impact. The Court explained that it's "cases have not embraced the proposition that a law or other official act, without regard to whether it reflects a racially discriminatory purpose, is unconstitutional solely because it has a racially disproportionate impact." Id. at 238.

Since that time, the Supreme Court "has been reluctant to extend the disparate impact theory to other laws prohibiting discrimination even where the statutory language bears greater resemblance" to the Civil Rights Act's anti-discrimination provisions. Contractors Labor Pool, Inc. v. NLRB, 323 F.3d 1051, 1060 (D.C. Cir. 2003) (declining to recognize disparate impact claim under statutory provision prohibiting discrimination against employees in order to encourage or discourage union membership). See also Hazen Paper Co. v. Biggins, 507 U.S. 604, 608 (1993) (holding that an individual has no cause of action under the Age Discrimination in Employment Act when treated differently based on "a factor, such as an employee's pension status or seniority, that is empirically correlated with age").

Thus, not all antidiscrimination laws are enforceable through disparate impact claims. Rather, as the Supreme Court has recently explained, "antidiscrimination laws must be construed to encompass disparate-impact claims when their text refers to the consequences of actions and not just to the mindset of actors, and where that interpretation is consistent with statutory purpose." Texas Dept. of Housing & Community Affairs', 135 S. Ct. at 2518. Here, MPRA does not even prohibit discrimination based on the mindset of the actors, let alone discuss impermissible effects it is attempting to prevent.55 And the fundamental statutory purpose of MPRA is to save pension benefits, not to protect UPS.

Moreover, the Supreme Court instructs that "disparate-impact liability must be limited so employers and other regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system. And before rejecting a business justification -- or, in the case of a governmental entity, an analogous public interest -- a court must determine that a plaintiff has shown that there is 'an available alternative practice that has less disparate impact and serves the [entity's] legitimate needs."' Texas Dept. of Housing & Community Affairs, 135 S. Ct. at 2518 (citing Ricci v. DeStefano, 557 U.S. 557, 578 (2009)). Here, Central States' allocation of benefit suspensions is based on practical decisions designed to restore the plan to solvency, in furtherance of the very purpose of MPRA. For all of the reasons set forth in the Application, UPS would be unable to demonstrate that there exists some alternative means of saving the Fund that has less of an impact on UPS.

IV. Conclusion

Central States appreciates the Department's consideration of these comments regarding the Proposed Regulation.

Sincerely,

 

 

Thomas C. Nyhan

 

Executive Director and General

 

Counsel

 

Central States Southeast and

 

Southwest Areas

 

Pension Fund

 

Rosemont, IL

 

FOOTNOTES

 

 

1 81 Fed. Reg. 7253 (Feb. 11, 2016).

2 App., at 30.0.

3See App., at 9.1.1-.2 and attached Calculation Examples 13, 16, 19, 22, 25-25A, 28, 31, 34, 37, 40, 43 and 46 (explaining how the Application complies with the PBGC-based limitation and providing sample benefit calculations).

4See App., at 9.1.2 and attached Calculation Examples 15, 18, 21, 24, 27, 30, 33, 36, 39, 42, 45 and 48 (explaining how the Application complies with the age-based limitation and providing sample benefit calculations).

5See App., at 9.1.2 and attached Calculation Examples 14, 17, 20, 23, 26, 29, 32, 35, 38, 41, 44 and 47 (explaining how the Application complies with the disability-based limitation and providing sample benefit calculations).

6See App., at 7.1.1-.29 (required actuarial certification pursuant to Prop. Treas. Reg. § 1.432(e)(9)-1(d)(5), Temp. Treas. Reg. § 1.432(e)(9)-lT(c)(2) and Sections 4.02-.03 of Rev. Proc. 2015-34).

7 This limitation does not apply to the Fund. App., at 24.0.

8See App., at 13.1.1-13.2.3 (demonstrating that benefit suspensions are equitably distributed under the Application).

9 Factors to be taken into account in determining whether suspensions are equitably distributed may include one or more of the following: (I) Age and life expectancy; (II) Length of time in pay status; (III) Amount of benefit; (IV) Type of benefit: survivor, normal retirement, early retirement; (V) Extent to which participant or beneficiary has received post-retirement benefit increases; (VII) History of benefit increases and reductions; (VIII) Years to retirement for active employees; (IX) Any discrepancies between active and retiree benefits; (X) Extent to which active participants are reasonably likely to withdraw support for the plan, accelerating employer withdrawals from the plan and increasing the risk of additional benefit reductions for participants in and out of pay status; and (XI) Extent to which benefits are attributed to service with an employer that failed to pay its full withdrawal liability. 26 U.S.C. § 432(e)(9)(D)(vi)(I)-(XI).

10 The Tiering Rule applies to the Fund because it includes benefits attributable to participants' service with United Parcel Service, Inc. ("UPS"), an employer that meets the requirements of Code section 432(e)(9)(D)(vii)(III) {but see, FN 37, infra). The Fund is not aware of any other plans that have applied for benefit suspensions under MPRA that are subject to the Tiering Rule; however, nothing about Code section 432(e)(9)(D)(vii)(III) precludes its application to other plans.

11 26 U.S.C. § 432(e)(9)(D)(vii).

12 The preamble to the Proposed Regulation uses the term "Subclause" instead of "Tier." Because the Fund's Application uses the term "Tier," that usage has been retained herein for consistency.

13 81 Fed. Reg. 7254 (citations omitted).

14 Traditional canons of statutory construction provide that "Congress generally acts intentionally when it uses particular language in one section of a statute but omits it in another." Dept. of Homeland Sec. v. MacLean, 135 S. Ct. 913, 919 (2015). This canon "applies with particular force" if the provision that includes the language is in close proximity to the provision that omits it. Id.

15See, e.g., Association of Food and Dairy Retailers, Wholesalers and Distributers Comment (March 14, 2016); Arkansas Best Freight Systems, Inc. Comment (March 15,2016); see also, Pension Rights Center Comment, at 8-10 (December 7, 2015); International Brotherhood of Teamsters Comment, at 6 (December 7, 2015).

16See UPS Original Comment, at 21-24 (Dec. 5, 2015).

17Id. 25-26.

18See, e.g., Dean v. United States, 556 U.S. 568, 572 (2012) ("[W]e ordinarily resist reading words or elements into a statute that do not appear on its face.") (quoting Bates v. United States, 522 U.S. 23, 29 (1997).

19Leocal v. Ashcroft, 543 U.S. 1, 3 (2004) ("[W]e must give effect to every word of a statute wherever possible[.]").

20FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000).

21See, e.g., Bayview Hunters Point Community Advocates v. Metro. Transp. Comm 'n, 366 F.3d 692, 701 (9th Cir. 2004) ("A basic rule of statutory construction is that one provision should not be interpreted in a way which is internally contradictory or that renders other provisions of the same statute inconsistent or meaningless.").

22 481 U.S. 41 (1987).

23Id. at 51 (citing chain of authority originating with U.S. v. Boisdore's Heirs, 49 U.S. 113, 122 (1850) (quotation marks omitted)).

24 160 Cong. Rec. H9282 (daily ed. Dec. 11, 2014) (statement of Rep. Miller) ("[MPRA] will give plan trustees-labor and management -- the tools they need to avoid the impending collapse of many multiemployer plans. . . . We have an obligation to reform the multiemployer system so that we can protect the retirement security of workers nationwide.").

25 26 U.S.C. § 432(e)(9)(G)(v).

26 26 U.S.C.§ 432(e)(9)(D)(i)-(iv).

27 26 U.S.C. § 432(e)(9)(D)(vi).

28See 81 Fed. Reg. 7254. However, that Congress provided this narrow protection under Code section 432(e)(9)(D)(vii) in no way suggests that a Tier 3 employer is a protected class akin to the historically marginalized groups that Congress has chosen to protect through comprehensive anti-discrimination laws. See, Section III.C, infra.

29 The Alternative Rule would require that any suspension of benefits be applied to provide for a lesser reduction of benefits attributable to service with a Tier 3 employer than to benefits attributable to service with any other employer. See, 81 Fed. Reg. 7254-55.

30 26 U.S.C. § 432(e)(9)(D)(vi). For example, assume that, without considering the Tiering Rule, a proposed plan of benefit suspensions is "equitably distributed" within the meaning of Code section 432(e)(9)(D)(vi). Under the Alternative Rule, application of the Tiering Rule would require the plan sponsor to transfer to Tier 2 benefits suspensions which had been equitably allocated to Tier 3 benefits. Such a redistribution would be particularly inequitable given that it would result in smaller suspensions for participants who would be protected by the make-whole agreement, and greater suspensions for participants lacking such protection.

31 Prop. Treas. Reg. § 1.432(e)(9)-l(d)(8)(ii)(A).

32 For the reasons explained in Section II.D, infra, an even closer fit between legislative intent and the participant-by-participant test reflected in the Proposed Regulation would exist if Tier 3 benefits were limited to those covered under the applicable Tier 3 employer's make-whole agreement.

33See UPS Supplemental Comment, at 7-9.

34 Prop. Treas. Reg. § 1.432(e)(9)-l(d)(8)(ii)(A) (emphasis added).

35 Had Congress intended for equitable factors to be considered on an aggregate basis, Code section 432(e)(9)(D)(vi) would have looked quite different:

"(vi) Any suspensions of benefits shall be equitably distributed across the among groups and categories of participants and beneficiariesy population, taking into account factors, with respect to such groups and categories of participants and beneficiaries and their benefits, that may include one or more of the following: (I) Average age and life expectancy; (II) Average length of time in pay status; (III) Average amount of benefit; (IV) Prevalence of type of benefit: survivor, normal retirement, early retirement;" and so on. Compare 26 U.S.C. § 432(e)(9)(D)(vi), FN 9, supra.

36 Prop. Treas. Reg. § 1.432(e)(9)-l(d)(8)(ii)(B).

37 An alternative interpretation of the statute is that an employer only satisfies the criteria in Code section 432(e)(9)(D)(vii)(III)(bb) when the make-whole agreement covers all, or at least substantially all, of the employer's employees who are covered by the multiemployer plan. This interpretation accepts the premise that Code section 432(e)(9)(D)(vii)(III) applies to all employees of an eligible employer. But to resolve the inconsistencies and absurd results discussed above, it is necessary to understand the phrase "assumed liability for providing benefits to participants and beneficiaries of the plan under a separate, single-employer plan sponsored by the employer" in Code section 432(e)(9)(D)(vii)(III)(bb) as referring to all of the company's employees that participate in the plan. While it is more logical to interpret Code section 432(e)(9)(D)(vii)(III) as applying only to employees covered by the make-whole agreement, the alternative approach of limiting this section to employers who backstop all of their employees is a more reasonable interpretation of the statute than the approach taken in the Proposed Regulation.

38 App., at 2.1.1-.2.

39 App., at 2.1.1-.4.

40Id.

41 App., at 13.1.1 - 13.1.11.

42 App., at 2.1.2.

43 App., at 13.1.8.

44See, UPS Supplemental Comment, at 6-7. The Application does not discriminate against UPS. Further, nothing about the Proposed Regulation imposes an employer-by-employer anti-discrimination rule. See, Section III.C, infra.

45See, App., at 8.2.62-.63.

46Id.

47See, App., at 8.2.62.

48 26 U.S.C. §§ 432(e)(9)(D)(vi)(I), (II), and (VIII).

49 As explained in the Application, had a lower formula not been applied to terminated participants with fewer than 20 years of service, substantially larger cuts would have been necessary for all other participants in order to comply with the requirements of Code section 432(e)(9)(D)(iv). See App., at 13.1.3.

50 81 Fed. Reg. 7254.

51See Griggs v. Duke Power Co., 401 U.S. 424 (1971) (recognizing disparate impact claims for the first time, in the context of Civil Rights Act employment discrimination claims).

52See Texas Dept. of Housing & Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2518 (2015) (recognizing disparate impact claims under the Fair Housing Act).

53See Griggs, 401 U.S. at 429-30 ("The objective of Congress in the enactment of Title VII is plain from the language of the statute. It was to achieve equality of employment opportunities and remove barriers that have operated in the past to favor an identifiable group of white employees over other employees"); Smith, Texas Dept. of Housing & Community Affairs, 135 S. Ct. at 2516 (explaining that, "to resolve the social unrest in the inner cities" after the assassination of Dr. Martin Luther King, Jr., Congress passed the Fair Housing Act, which "addressed the denial of housing opportunities on the basis of race, color, religion, or national origin") (internal quotation omitted).

54See Segar v. Smith, 738 F.2d 1249, 1271-72 (D.C. Cir. 1984) (explaining that the purpose of Title VII" is not well served by a requirement that the plaintiff in every case pinpoint at the outset the employment practices that cause an observed disparity between those who appear to be comparably qualified. Such a requirement in effect permits challenges only to readily perceptible barriers; it allows subtle barriers to continue to work their discriminatory effects, and thereby thwarts the crucial national purpose that Congress sought to effectuate in Title VII").

55See Texas Dept. of Housing & Community Affairs, 135 S. Ct. at 2517-18 ("The Smith plurality emphasized that both § 703(a)(2) of Title VII and § 4(a)(2) of the ADEA contain language "prohibit[ing] such actions that 'deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's' race or age." 544 U.S., at 235, 125 S.Ct. 1536. As the plurality observed, the text of these provisions "focuses on the effects of the action on the employee rather than the motivation for the action of the employer" and therefore compels recognition of disparate-impact liability."). MPRA contains no comparable provision prohibiting actions that otherwise adversely affect UPS.

 

END OF FOOTNOTES
DOCUMENT ATTRIBUTES
  • Authors
    Nyhan, Thomas C.
  • Institutional Authors
    Central States Pension Fund
  • Cross-Reference
    REG-101701-16 2016 TNT 27-11: IRS Proposed Regulations.
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2016-5662
  • Tax Analysts Electronic Citation
    2016 TNT 52-23
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