Administration March 2, 2004

Enron Plan Could Have $125 million Underfunding

February 27, 2002 (PLANSPONSOR.com) - The head of the federal agency that bails out troubled defined benefit plans told a Congressional committee Wednesday that one of three Enron plans is underfunded by at least $125 million.

Reported by

Fred Schneyer

Executive Director Steven Kandarian of the Pension Benefit Guaranty Corporation (PBGC) told the Senate Finance Committee that the underfunding figure is based on the assumption that Enron surrenders its plan to his agency – something it hasn’t yet done. The plan has $220 million in assets, Kandarian said.

History

Kandarian traced the history of the underfunded Enron Retirement Plan through several rounds of plan-design changes.

According to Kandarian, the Enron Retirement Plan started in July 1986 with a final average pay arrangement. As of January 1987, the company changed it to a floor-offset Employee Stock Option Plan (ESOP).

Although a 1987 law banned ESOPs in which more than 10% of the combined asset values of the traditional pension plan and an ESOP were in company stock, Kandarian said the Enron plan was grandfathered into the new law because it was already in existence when the law was passed.

For the 1996 to 2000 period, the company released stock shares to the ESOP for participants. Finally, in 1996, the Enron Plan was amended to become a cash balance arrangement.

Kandarian said Enron also has two other defined benefit pension programs that would be fully funded if the agency has to take them over.

Close Watch

Generally, Kandarian said the agency is keeping a close eye on the goings-on at Enron, which is now the subject of numerous lawsuits, Congressional investigations, and has filed for federal bankruptcy protection.

“To date, PBGC has not taken over any Enron plans, but we are closely monitoring the situation,” Kandarian told senators. The agency has the authority to take over a defunct plan’s retiree obligations and make payments directly to workers.

The PBGC executive also reviewed his agency’s current financial picture, saying that it had a $7.7-billion surplus as of September 30, 2001.

That surplus may come under pressure now that the PBGC is to take over the pension plans for the bankrupt LTV Steel (see more about a deal announced Wednesday to sell LTV’s steel assets .

LTV’s pension claim will be more than $1 billion – the largest in PBGC history, Kandarian said.