Oneida Challenges PBGC Termination Fee

November 16, 2006 ( - Flatware maker Oneida Ltd., which emerged from bankruptcy in September, is challenging a new termination penalty fee imposed by the nation's private pension insurer.

The Oneida, New York-based company has filed suit in U.S. Bankruptcy Court in Manhattan, challenging a law passed earlier this year that calls for firms that dumped their pension obligations on the Pension Benefit Guaranty Corporation (PBGC) to pay a termination fee of $1,250/year for three years for each plan participant (see  House Budget Bill Imposes Fee for Dumped Pension Plans ).  

, which filed for Chapter 11 protection March 19, blaming its bankruptcy filing, at least in part, on its “unsustainable” pension liability, is currently on the hook to the PBGC for $6.9 million in termination fees, according to the Associated Press.   In the suit, Oneida challenges the law, arguing that the PBGC’s fees were actually part of the agency’s pre-bankruptcy unsecured claims, which were dismissed under Oneida’s court-approved reorganization plan.

“This is a law that was passed in January just before Oneida filed,” Oneida bankruptcy lawyer Michael Torkin said, according to the report. “Our view is that the law should not apply because it restricts a debtor’s ability to obtain a discharge of pension-related claims in a Chapter 11.”   Torkin said Oneida believes the termination fees run counter to provisions of the Bankruptcy Code allowing companies to reject pension plans in order to survive, according to the report.

At issue, says Torkin, is whether federal bankruptcy law allowing companies to reject their pensions essentially trumps other federal laws requiring that companies make termination payments to the PBGC.

Under a deal struck with Oneida in September, the PBGC took over Oneida’s main pension plan, which was facing a $48 million shortfall (see  Onieda Hands $48.3M in Pension Liabilities to the PBGC ).   The PBGC filed a $2.3 million lien against the company and eight of its affiliates in September 2004, after Oneida missed pension payments (See  PBGC Hits Silverware Firm with Pension Lien ).