PBGC Goes to Court to End Lehman Brothers Pension

December 12, 2008 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC) has initiated court action to end the Lehman Brothers Holdings Inc. Retirement Plan.

The agency said in a press release that it made the move ahead of a December 22 bankruptcy court hearing on the sale of Lehman subsidiaries that make up the firm’s investment management business so that the subsidiaries being sold remain liable for the pension plan’s unfunded benefit liabilities.   PBGC said it believes that Lehman’s non-bankrupt controlled group members could afford to take care of the pension plan.  

If the subsidiaries do not end up responsible for the pension plan, the PBGC will take over the assets and use insurance funds to pay guaranteed benefits earned under the plan, which will end as of December 12, 2008, if approved. According to PBGC estimates, the pension plan is 95% funded, with $898.2 million in assets to cover $940.8 million in benefit liabilities. The agency expects to be responsible for $17.9 million of the $42.6 million shortfall.

Amid tightening credit markets and the loss of liquidity, and unable to borrow cash to maintain operations, Lehman Brothers filed for Chapter 11 protection in the U.S. Bankruptcy Court in Manhattan on September 15. On September 20 the court approved the sale of substantially all of Lehman Brothers’ capital markets and investment banking operations to Barclays Capital Inc. for $1.75 billion.