[Federal Register Volume 84, Number 237 (Tuesday, December 10, 2019)]
[Notices]
[Pages 67484-67487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26519]
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PENSION BENEFIT GUARANTY CORPORATION
Notice of Approval of Alternative Arbitration Procedure; American
Arbitration Association
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Notice of approval.
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SUMMARY: This notice advises interested persons that the Pension
Benefit Guaranty Corporation (PBGC) has approved a request from the
American Arbitration Association (AAA) for approval of an alternative
arbitration procedure.
DATES: PBGC's approval of the AAA's alternative arbitration procedure
is effective January 1, 2020.
FOR FURTHER INFORMATION CONTACT: Bruce Perlin ([email protected]),
202-326-4020, ext. 6818, Office of the General Counsel, Suite 340, 1200
K Street NW, Washington, DC 20005-4026; (TTY users may call the Federal
relay service toll-free at 1-800-877-8339 and ask to be connected to
202-326-4020, extension 6818 or 6757.)
SUPPLEMENTARY INFORMATION:
Background
Section 4221(a)(1) of the Employee Retirement Income Security Act
of 1974 (ERISA), as amended by the Multiemployer Pension Plan
Amendments Act of 1980 (MPPAA), requires ``any dispute'' between an
employer and a multiemployer pension plan concerning a withdrawal
liability determination to be ``resolved through arbitration.'' Under
the MPPAA, an employer has 90 days after receipt of notice of a
withdrawal liability assessment to request review of that assessment.
ERISA Sec. 4219(b)(2)(A). If there remains a dispute about the
assessment of withdrawal liability, the employer may ``initiate''
arbitration of the dispute within a 60-day period after the earlier of
(i) the date the employer was notified of the plan's response to the
employer's request for review, or (ii) 120 days after the date that the
employer requested review of the withdrawal liability. ERISA Sec.
4221(a)(1). If the employer fails to timely initiate arbitration, the
assessment becomes due and owing and the plan sponsor may bring an
action in a state or federal court to collect the assessment. ERISA
Sec. 4221(b).
The MPPAA directed PBGC to promulgate fair and equitable procedures
for the conduct of an arbitration under section 4221 of ERISA. PBGC's
implementing regulation, ``Arbitration of Disputes in Multiemployer
Plans'' (29 CFR part 4221), was designed to provide procedures to
facilitate prompt resolution of disputes by an impartial arbitrator,
facilitating expeditious resolutions of disputes concerning an
employer's withdrawal liability. PBGC's default arbitration procedures
provide rules for the appointment and powers of the arbitrator, rules
for discovery and hearings, and rules for awards, costs, filing and
service (Sec. Sec. 4221.4-4221.13).
Scope of Alternative Arbitration Procedures
In lieu of the default procedures, under Sec. 4221.14 of PBGC's
arbitration regulation, an arbitration may be conducted in accordance
with an alternative arbitration procedure approved by PBGC in
accordance with Sec. 4221.14(c). Certain rules applicable to the
default procedures cannot be varied in any alternative procedure. 29
CFR 4221.14(b). If an arbitration is conducted under a PBGC-approved
alternative procedure, the alternative procedure governs all aspects of
the arbitration, with the following exceptions provided in Sec.
4221.14(b): The time limits for initiating arbitration may not differ
from the time limits provided Sec. 4221.3; the arbitrator must be
selected after the initiation of arbitration; the arbitrator must give
the parties an opportunity for prehearing discovery that is
substantially equivalent to that required by Sec. 4221.5(a)(2); copies
of the award must be made available to the public at least to the
extent mandated by Sec. 4221.8(g); and the arbitration costs must be
allocated in accordance with Sec. 4221.10.
Process for Approval of Alternative Arbitration Procedures
Under Sec. 4221.14(c) PBGC may approve arbitration procedures on
its own initiative by publishing an appropriate notice in the Federal
Register. Additionally, the sponsor of an arbitration procedure may
request PBGC approval of its procedures by submitting an application to
PBGC. The application must include: (1) A copy of the procedures for
which approval is sought; (2) a description of the history, structure
and membership of the organization that sponsors the procedures; and
(3) a description of the reasons why, in the sponsoring organization's
opinion, the procedures satisfy the criteria for approval set forth in
this section.
Criteria for Approval of Alternative Procedures
Under Sec. 4221.21(d), PBGC shall approve an application if it
determines that the proposed procedures will be substantially fair to
all parties involved in the arbitration of a withdrawal liability
dispute and that the sponsoring organization is neutral and able to
carry out its role under the procedures. PBGC may request comments on
the application by publishing an appropriate notice in the Federal
Register and notice of PBGC's decision on the application shall be
published in the Federal Register. Unless the notice of approval
specifies otherwise, approval will remain effective until revoked by
PBGC through a Federal Register notice.
AAA's Alternative Arbitration Rules--1981 & 1986 MPPAR
In 1985, on its own initiative, PBGC approved the 1981
Multiemployer Pension Plan Arbitration Rules for Withdrawal Liability
Disputes (the ``1981 MPPAR''), an alternative arbitration procedure
sponsored by the International Foundation of Employee Benefit Plans and
administered by the American Arbitration Association (AAA). 50 FR 38046
(Sept. 19, 1985). In 1986, PBGC approved AAA's request to use an
amended MPPAR (the ``1986 MPPAR'') which eliminated certain procedural
differences from the 1981 MPPAR and PBGC's final arbitration
regulation. 51 FR 22585 (June 20, 1986). The administrative fee
schedule for handling arbitrations in the 1986 MPPAR was applicable
until 2013, at which point AAA adopted an updated 2013 Fee Schedule,
creating a revised MPPAR, effective February 1, 2013 (``2013 MPPAR'').
The new Administrative Fee Schedule provides for increases to the
Initial Filing Fee, establishes two different fee arrangements--the
Standard and Flexible Fee Schedules, and adds a ``Final Fee'' under
each schedule and a ``Proceed Fee'' in the flexible schedule context.
Other than significant changes to the Administrative Fee Schedule and
the removal of language regarding the apportionment of fees, the 2013
MPPAR are identical to the 1986 MPPAR that PBGC previously approved.
Under Sec. 4221.14, AAA has requested PBGC
[[Page 67485]]
approval of the updated proposed 2013 MPPAR (the ``Application'').
Procedural Background
PBGC published a notice of the AAA's request in the Federal
Register at 81 FR 15578 (March 23, 2016), to advise interested persons
of the AAA's Application for approval and solicit their views on it.
PBGC received four comments in response to the March 23, 2016 notice.
PBGC then invited AAA to respond to the public comments. PBGC published
AAA's response in the Federal Register at 82 FR 27089 (June 13, 2017),
and solicited additional comments. PBGC received one final comment.
After the final comment period closed, PBGC and AAA began discussions
on changes to the 2013 MPPAR.
AAA's Application
AAA's Application included the necessary information under Sec.
4221.14(c): A copy of the 2013 MPPAR; a description of the history,
structure and membership of AAA; and a discussion of the reasons why,
in AAA's opinion, the 2013 MPPAR satisfies the criteria for PBGC
approval under Sec. 4221.14(d). In response to the public comments and
discussions between AAA and PBGC, AAA submitted the proposed rules
modifying the 2013 MPPAR (``the 2019 Rules''), which completely revised
the applicable fee schedule, added language regarding the apportionment
of fees, and revised procedural rules related to the arbitrator
selection process.
Section 4221.14(c)(2)--History and Structure of AAA
AAA's Application provided:
The American Arbitration Association (AAA), is a not-for-profit
organization with offices throughout the U.S. as well as abroad. AAA
has a long history and experience in the field of alternative
dispute resolution, providing services to individuals and
organizations who wish to resolve conflicts out of court. The AAA is
named in 40 federal statutes and regulations, as well as over 300
state statutes and regulations. The AAA is not a membership
organization.
The AAA role in the dispute resolution process is to administer
cases, from filing to closing. The AAA provides administrative
services in the U.S., as well as abroad through its International
Centre for Dispute Resolution (ICDR). The AAA's and ICDR's
administrative services include assisting in the appointment of
mediators and arbitrators, setting hearings, and providing users
with information on dispute resolution options, including settlement
through mediation. Ultimately, the AAA aims to move cases through
arbitration or mediation in a fair and impartial manner until
completion.
Additional AAA services include the design and development of
alternative dispute resolution (ADR) systems for corporations,
unions, government agencies, law firms, and the courts. The
Association also provides elections services as well as education,
training, and publications for those seeking a broader or deeper
understanding of alternative dispute resolution.
Section 4221.14(c)(3)--Discussion of Why the 2013 MPPAR Satisfies the
Criteria for PBGC Approval Under Sec. 4221.14(d)
AAA's Application provided:
The American Arbitration Association (AAA) has been
administering the cases that fall under the Multiemployer Pension
Plan Arbitration Rules for Withdrawal Liability Disputes for thirty-
four (34) years. The rules that have been previously approved by the
PBGC are effective June 1, 1981 and revised effective September 1,
1986. The AAA's 1986 MEPPA Rules did not change; the only update
made was to increase the administrative fees for handling MEPPA
arbitrations from the 1986 fee schedule to the 2013 fee schedule.
The AAA has provided quality administration on this caseload and
based on parties and arbitrator feedback, the AAA's service is
valued and should continue to be available. However, as a not-for
profit organization that receives funding only through the
administrative fees earned on cases, we need to ensure that the
costs associated with the administration of a particular caseload do
not vastly exceed the fees earned.
The fee increase implemented by the AAA was necessary because of
the substantial administrative costs and staffing associated with
these complex arbitrations. In particular, MEPPA arbitrations are
similar to many of the large complex arbitrations administered by
the AAA. They tend to be highly contentious, involve large dollar
amounts, the parties engage in voluminous discovery, and there can
be multiple preliminary calls as well as multiple days of
evidentiary hearings, can be pending for long periods of time,
involve bifurcated issues and extensive briefing.
The AAA also found it necessary to implement a substantially
heightened arbitrator disclosure requirements based on the nature of
the MEPPA cases. All of these factors were considered when reviewing
the fee schedule and a determination was made to change the fees
from the 1986 $650.00 fee to the 2013 fee schedule. The 1986 fee
schedule provided the AAA discretion to set the fee where the net
amount in dispute was in excess of $5 million. Given this level of
discretion provided in the 1986 fee schedule, the AAA did set
administrative fees equivalent to those reflected in the 2013 fee
schedule for cases with claims in excess of $5 million. In addition,
the 2013 fee schedule is the same schedule the AAA has applied to
other arbitrations caseloads that are similarly complex.
The American Arbitration Association was founded in 1926,
following enactment of the Federal Arbitration Act, with the
specific goal of helping to implement arbitration as an out-of-court
solution to resolving disputes. This legal framework was passed by
Congress and signed by President Calvin Coolidge. The AAA's staff
members and neutrals continue to live out the principles on which
the Association was founded.
The AAA's official mission statement and vision statement are
based on three core values: Integrity, conflict management, and
service. We have a long term working relationship with the
Arbitrators on the MEPPA Panel. In addition to managing this panel,
the AAA recruits Arbitrators who meet the criteria established for
admission to this panel. The AAA has long held its mediators and
arbitrators to strict codes of ethics and model standards of conduct
to ensure fairness and impartiality in conflict management. To
further ensure the AAA's integrity, however, the Association also
developed Standards of Ethics and Business Conduct for its staff, as
well as a general Statement of Ethical Principles to expand on its
core values as an organization.
Public Comments and Resulting Changes to 2019 Rules
All interested persons were invited to submit written comments on
the Application request. PBGC received four comments. Each commenter
urged PBGC to reject AAA's Application on the basis that the fees in
the 2013 MPPAR were too high. Three commenters maintained that AAA's
Application did not substantiate the significant increase in fees under
the 2013 MPPAR. Another commenter suggested that a reasonable fee
increase to account for the passage of time since the 1986 MPPAR made
sense. PBGC agrees that a modest increase from the 1986 MPPAR is
reasonable. In response, AAA proposed a modified fee structure that
removes the Final and Flexible fee schedules and considerably reduces
the initiation fees:
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1986 MPPAR Proposed 2013 Proposed 2019
----------------------------------- MPPAR rules
Amount in dispute -------------------------------------
Initiation fee Maximum fees Initiation fee
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Less than $1M.......................... $650-$1,000...................... $1,550-$11,200 $2,500
$1M-$5M................................ 1,000-1,450...................... 14,400 3,750
[[Page 67486]]
$5M and above.......................... Case-by-case..................... 14,400-77,500 5,000
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With the removal of the Final and Flexible fee schedules, the 2019
Rules provide for additional fees for matters that are in abeyance for
over one year ($300) and a hearing rescheduling fee ($150). The 2019
Rules also include a Refund Schedule based on the timing of a case
settlement or withdrawal, however $750 of the Initiation Fee is non-
refundable. Other than these fees, parties initiating arbitration will
only be required to pay the Initiation Fee and the Final Fees are no
longer applicable. With these changes and the adjustment to the
Initiation Fee schedule, PBGC has determined that the 2019 Rules are
fair and equitable based on AAA's Response and follow-up discussions
between PBGC and AAA. The 2019 Rules provide for a reasonable inflation
adjustment from 1986 and also account for resources that were not
necessary in 1986 such as cyber-security.
Three commenters pointed out that the 2013 MPPAR did not
specifically provide for apportionment of the initiation fees between
the parties. Additionally, two commenters suggested that the initiation
fee should be split in advance of the arbitration. Under Sec. 4221.10,
``other costs of arbitration'' are required to be ``borne equally
unless the arbitrator determines otherwise'' and Sec. 4221.14(b)(5)
requires alternative procedures to allocate the cost of arbitration in
accordance with Sec. 4221.10. Therefore, PBGC agrees that the 2019
Rules should specify that the arbitration fees should be borne equally,
subject to arbitrator discretion. However, due to the pay first,
dispute later arrangement that MPPAA requires, PBGC does not agree that
the initiation fee should be borne by both parties equally in advance
of the arbitration. Section 47 of the 2019 Rules specifically provide
for apportionment, as follows:
An Initial Filing Fee is payable in full by the filing party
when a claim, counterclaim, or additional claim is filed, subject to
final apportionment by the Arbitrator in the Award.
Fee Apportionment
Under 29 CFR 4221.10, the cost of arbitration shall be borne
equally by the parties, unless the arbitrator determines otherwise.
Sec. 4221.14 (b) (5) also requires alternative procedures to
allocate the cost of arbitration in accordance with Sec. 4221.10.
The inclusion of this language in the 2019 Rules addresses PBGC's
concerns regarding fee apportionment and is consistent with Sec.
4221.10. Two commenters focused on the arbitrator selection process
and, specifically, AAA's ability to unilaterally appoint an arbitrator
if the parties cannot agree on an arbitrator selection. One of those
commenters also pointed out that AAA's process for disqualification of
an arbitrator is inadequate as compared to PBGC's default rule.
Although the arbitrator selection process in the proposed 2013 MPPAR
did not differ from the approved 1986 MPPAR, PBGC believes the
commenters raised valid concerns with the arbitrator selection process.
PBGC's 1986 MPPAR approval provided that ``fundamental fairness demands
that the impartiality of one in whom such powers are vested be free
from reasonable doubt, and the best way to ensure that all parties will
have confidence in his impartiality is to have him selected by mutual
consent.'' PBGC's default rules under Sec. 4221.4(e) provide that if
the parties fail to select an arbitrator either party or both may seek
the designation and appointment of an arbitrator in a U.S. district
court pursuant to the provisions in title 9 of the United States Code.
PBGC agrees with the commenters that AAA's, and not the parties'
selection of an arbitrator, and their ultimate determination on a
party's objection undercuts the principle of mutual consent. Therefore,
PBGC recommended that AAA amend its rules consistent with Sec.
4221.4(e) and provide a more equitable process that ensures an
arbitrator is selected by mutual consent and the arbitrator removal
process is more aligned with PBGC regulations. AAA agreed to provide an
extended selection process if the parties cannot agree on an
arbitrator, and if the parties are still unable to mutually select an
arbitrator, either party may seek designation and appointment of an
arbitrator in a U.S. District Court, consistent with Sec. 4221.4(e).
Additionally, consistent with Sec. 4221.4(b), the 2019 Rules
provide for automatic removal of an arbitrator if a party objects
within 10 days of a post-appointment disclosure. In that case, a new
arbitrator will be selected through the mutual consent process.
Objections received after 10 days of a post-appointment disclosure will
be ruled on by the arbitrator, not AAA, unless the parties mutually
agree to have AAA make the determination. These changes in the 2019
Rules are found in Section 11, Appointment from Panel and Section 13,
Disclosure and Challenge Procedure:
Section 11. Appointment From Panel
The Arbitrator shall be appointed in the following manner:
Immediately after the filing of the Demand or Submission, the AAA
shall submit simultaneously to each party to the dispute an
identical list of names of not less than five (5) persons, with a
brief biographical profile and fee structure of each, chosen from
the Panel. Each party to the dispute shall have fourteen days from
the mailing date in which to cross off any names objected to, number
the remaining names to indicate the order of preference, and return
the list to the AAA. If a party does not return the list within the
time specified, all persons named therein shall be deemed
acceptable. From among the persons who have been approved on both
lists, and in accordance with the designated order of mutual
preference, the AAA shall invite the acceptance of an Arbitrator to
serve. If the parties fail to agree upon any of the persons named,
or if acceptable Arbitrators are unable to act, or if for any other
reason the appointment cannot be made from the submitted lists, the
parties can agree to the submission of additional names. If the
parties fail to mutually consent to the selection of an arbitrator,
either party or both may seek designation and appointment of an
arbitrator in a U.S. district court, consistent with 29 CFR
4221.4(e).
Section 13. Disclosure and Challenge Procedure
A person appointed as neutral Arbitrator shall disclose to the
AAA any circumstances likely to affect impartiality, including any
bias or any financial or personal interest in the result of the
arbitration or any past or present relationship with the parties or
their counsel. Upon receipt of such information from such Arbitrator
or other source, the AAA shall communicate such information to the
parties, and, if it deems it appropriate to do so, the Arbitrator
and others.
In the event a party objects within 10 days of a post-
appointment disclosure, consistent with 29 CFR 4221.4(b), the
arbitrator shall withdraw and the AAA shall select a new arbitrator
by going back to the selection process. Objections received after 10
days will be determined by the Arbitrator and not the AAA,
consistent with 29 CFR 4221.4(c), unless the parties mutually agree
to have the AAA make the decision.
[[Page 67487]]
Statutory and Regulatory Criteria
In addition to requiring that alternative arbitration procedures
mirror PBGC's default rules of arbitration, Sec. 4221.14 provides the
procedure and criteria for approval. The Procedure for approval of
alternative procedures under Sec. 4221.14(c) provides that an
application requesting approval shall include (1) a copy of the
procedures for which approval is sought; (2) a description of the
history, structure and membership of the organization that sponsors the
procedures; and (3) a discussion of the reasons why, in the sponsoring
organization's opinion, the procedures satisfy the criteria for
approval set forth in 4221.14(d). The Criteria for approval of
alternative procedures under Sec. 4221.14(d) provides: ``PBGC shall
approve an application if it determines that the proposed procedures
will be substantially fair to all parties involved in the arbitration
of a withdrawal liability dispute and that the sponsoring organization
is neutral and able to carry out its role under the procedures.''
Determination
In light of the significant increase of fees in the 2013 MPPAR and
the comments submitted by interested parties, PBGC resumed discussions
with AAA to seek changes to ensure the proposed rules were
substantially fair to all parties involved in the arbitration of
withdrawal liability disputes. PBGC advised AAA that three specific
issues needed to be addressed for any amendment to the 1986 MPPAR to be
approved: (i) Fee Increase; (ii) Apportionment of Fees; and (iii)
Arbitrator Selection Process. The discussions resulted in proposed
changes by AAA which are memorialized in the 2019 Rules as discussed
above. PBGC has determined that the changes reflected in the 2019 Rules
are consistent with the requirements of section 4221 of ERISA and the
regulatory requirements under Sec. 4221.14(d) in that they are fair to
all parties involved in the arbitration of a withdrawal liability
dispute and AAA is neutral and able to carry out its role under the
procedures. This approval is effective unless revoked by PBGC, and
future changes, including changes to the applicable fee schedule will
be subject to PBGC review under Sec. 4211.14(d).
Issued in Washington, DC.
Gordon Hartogensis,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2019-26519 Filed 12-9-19; 8:45 am]
BILLING CODE 7709-02-P