Justices Refuse to Hear TWA Termination Appeal

October 11, 2006 (PLANSPONSOR.com) - The nation's high court has turned away a request to review a long-running legal battle over whether the Pension Benefit Guaranty Corporation (PBGC) can legally waive financial liability imposed on a defined benefit plan sponsor.

Without comment , the US Supreme Court rejected the request by a group of plan participants in the terminated DB plans sponsored by Trans World Airlines in a case dating back to 1992.

That’s when the now defunct air carrier filed for Chapter 11 bankruptcy. PBGC notified the bankruptcy court, TWA, and TWA employees that the company’s pension plans were underfunded by $1.124 billion and that it would terminate the pension plans and go after TWA and its former chairman, Carl Icahn, to make up the shortfall.

According to court history, however, the parties eventually announced an agreement between the company, the PBGC, Icahn and several employee unions. Under the pact, Icahn, through one of his corporations, Pichin Corp., would loan TWA $200 million. TWA would then issue $300 million in notes to make part of its annual plan contributions. For its part, the PBGC agreed it would not terminate the plans at that time and would release TWA and Icahn from future termination liability.

The agreement said that the PBGC would, at Pichin’s request, terminate the plans if a “significant event” occurred and would limit Icahn’s liability to $240 million.

In December 2000, Icahn’s corporation notified PBGC that such an event had taken place – the Internal Revenue Service had denied a favorable tax ruling to Icahn and his corporations. The PBGC then agreed to terminate the plans in January 2001 – prompting a lawsuit by employee unions to stop the termination.

A federal judge in the US District Court for the  District of Columbia in April 2002 threw out the lawsuit, finding that PBGC acted within its Employee Retirement Income Security Act (ERISA) authority. The US Court of Appeals for the District of Columbia Circuit affirmed in July 2003 , rejecting the participants’ contention that the settlement agreement between TWA and PBGC was incompatible with ERISA’s plan termination provisions (SeeAppeals Court Affirms TWA Pension Plans’ Termination ).

The case is Adams v. Pension Benefit Guaranty Corporation,U.S., No. 06-145, cert. denied 10/10/06.