Companies Try To Avoid PBGC Involvement

July 12, 2001 ( - In a bid to avoid government interference, or scrutiny from the Pension Benefit Guaranty Corporation (PBGC), companies buying out portions of other companies, are opting to leave acquired businesses? ailing defined benefits plans behind, according to consultant William M. Mercer.

Corporate decision makers are concerned that PBGC, which has insured the nation’s private pension system since 1974, will force the sellers to make up the difference between the plan’s liabilities and its assets, according to New York consultant Dan Rudin, of William Mercer’s merger and acquisition practice.

Those driving merger and acquisition activity prefer to play it safe, leaving the potentially lucrative plan on the table and the responsibility of pension payments with the seller.

The PBGC insures the pensions of over 40 million participants, stepping in when employer sponsored defined benefit plans run into trouble, often becoming the plan sponsor for failed plans. Although there are limits to what the organization can legally pay, most people are paid what they would have received had the plan not failed.

The group contacts companies considering mergers or acquisitions, paying particular attention to those that:

  • junk bond status on their corporate bonds
  • pension plan liabilities of over $25 million, and
  • under-funding of $5 million

The PBGC will request an actuarial estimate of the plan?s liabilities from companies, which meet one of the above criteria and have over 5,000 participants.