PBGC Pushing for Pension Changes

September 15, 2004 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation says it will guarantee the basic pension benefits of airline workers from US Airways and United Air Lines should the plans of those companies terminate - but the agency doesn't plan to leave the current system unchallenged.

“The PBGC will protect workers’ pensions, but we must have the tools going forward to require companies to meet their obligations,” said PBGC Executive Director Bradley D. Belt in a statement. “We need fundamental reforms to improve the financial health of the defined benefit pension system, to protect participants’ benefits, and to shore up the federal pension insurance program.”

>Responding to reports that the airlines in bankruptcy protection have said they won’t make required contributions to their pension plans (see  US Airways Returns to Bankruptcy Court ), Belt said, “Failure to act will increase the risk that participants will lose promised benefits and that the pension insurance program will suffer larger losses. We need to make clear that pension contributions are required whether a company is in bankruptcy or not.”


>The nation’s private pension plan insurer is recommending specific changes that could be made in the bankruptcy context to better protect workers and retirees.    Specifically, the PBGC says:

  • He agency should be able to perfect a lien in favor of the pension plan when companies in bankruptcy skip their legally required contributions,
  • companies should notify participants within 30 days of a bankruptcy filing of the plan’s funded status on a termination basis and of legal limits on PBGC’s guarantees.

>When a company outside of bankruptcy skips legally required pension contributions, the PBGC is able to perfect a lien against the company’s assets. However, in bankruptcy, companies and certain courts have held that pension contributions do not have to be made despite the increased risk to plan participants and the pension insurance fund, according to the PBGC.


Estate “Clause”


>United Airlines announced last month that it would not make roughly $500 million in contributions due to its pension plans this year (see  United Considers Scuttling Pension Plans ). Airways said yesterday that it will not make roughly $100 million in contributions due to its pension plans tomorrow. In its bankruptcy court filing, US Airways said it would be “irrational” to make pension contributions because it “provides no benefit to the estate.”

“That is a remarkable statement,” Belt said. “The company is saying it’s irrational to keep your pension promises and to comply with federal pension law. Bankruptcy should not be the path of least resistance to deal with your pension obligations.”