PBGC Releases Bankruptcy Plan Termination Rule
July 1, 2008 (PLANSPONSOR.com) - The Pension Benefit
Guaranty Corporation (PBGC) has proposed a rule to protect
the agency from liability growth during employer bankruptcy
proceedings.
The agency said the proposed regulation implements
a portion of the Pension Protection Act (PPA) requiring
that the termination of a pension plan, while the
sponsoring employer is in U.S. Bankruptcy Court, be dated
as of the bankruptcy case filing.
PBGC officials said the rule is intended to deal with
the long-time problem developing out of a sponsoring
employer's bankruptcy case during which the
company's pension plan typically fell further into the
red. That, in turn, caused the PBGC's liabilities for
the plan to skyrocket.
Implementing the proposal would protect the agency
from liability growth during bankruptcy proceedings,
reduce claims on its funds and strengthen the PBGC
insurance program, the PBGC asserted in an
announcement.
Rule changes in the new proposal include:
-
a participant's guaranteed benefit is based
on the amount of his service and the amount of his
compensation as of the bankruptcy filing date;
-
the Title IV guarantee limits, the maximum
guaranteeable benefit, the phase-in limit, and the
accrued-at-normal limit, are all determined as of the
bankruptcy filing date; and
-
only benefits that are nonforfeitable as of the
bankruptcy filing date are guaranteed. For example,
early retirement subsidies and disability benefits to
which a participant became entitled after the
bankruptcy filing date are not guaranteed.
The PBGC said the only time it anticipates having
trouble determining a bankruptcy filing date is with a
conversion from a Chapter 11 bankruptcy to a Chapter 7
bankruptcy, which will use the date of the original
bankruptcy petition as the bankruptcy filing date.
According to the PBGC, participants who retired
under a subsidized early retirement benefit (or a
disability or other benefit) to which they became
entitled between the bankruptcy filing date and the
termination date will continue in pay status, or may go
into pay status if they are not already receiving a
benefit, but the amount of the benefit is reduced to
reflect that the subsidy (or other benefit) is not
guaranteed.