The Pension Benefit Guaranty Corp. (PBGC) says it has asked the US District Court for the Southern District of New York to terminate the underfunded pension plan of Frontier Corp., which covers 5,500 workers and retirees. The former Global Crossing unit was sold last year to Citizens Communications Co.
The fund is underfunded by $105 million, according to PBGC estimates.
The PBGC notes that Global Crossing purchased the Rochester, N.Y.-based Frontier in 1999. In 2001 Global Crossing sold Frontier to Citizens Communications, while the sale agreement called for Global Crossing to transfer virtually the entire pension plan to Citizens. However, the PBGC notes that to date Global Crossing has not transferred the plan as it had agreed.
In bankruptcy proceedings, Global Crossing has proposed a plan of reorganization that includes transfer of the pension plan to a liquidating trust. That plan of reorganization could be approved at a December 4, 2002, court hearing, according to the PBGC. If the agency does not act before then, the PBGC will be unable to recover anything from the trust to cover the plan’s unfunded liabilities, which could harm participants and lead to an unreasonable increase in losses to the insurance program.
“We cannot allow an abusive arrangement that shoves an underfunded pension plan into a liquidating trust where all the gains belong to a select group of creditors and all the losses are dumped on the PBGC,” said Steven A. Kandarian, executive director of the federal pension insurance agency, in a statement.
While the PBGC has operated with a deficit for most of its existence, at the end of FY 2000, it had accumulated a $10-billion surplus. However, a combination of underfunded plan terminations, a loss on equity investments ($748 million), and actuarial charges cut that surplus to $8 billion at YE 2001 (see Fund Losses, Plan ‘Gains’ Add Up for PBGC ). The agency paid out more than $1 billion in benefits to nearly 269,000 people last year – a year in which the PBGC took over 104 terminated single-employer plans covering almost 89,000 people. While that is its largest one-year increase, the agency projects that it will cover a record 180,000 participants this year.
The PBGC notes that most workers and retirees in terminating pension plans are fully covered by PBGC’s guarantee. The maximum guarantee for workers in plans that terminate in 2002 is $3,579.55 a month (or $42,954.60 a year) for those retiring at age 65 (maximum guarantees are adjusted for retirees at other ages or those who elect survivor benefits). Retirees in private-sector defined benefit pension plans terminating in 2003 will get a $3,664.77 monthly maximum – a 2.38% hike from plans terminating this year (see PBGC 2003 Maximum Benefit Up by 2.3% ).
The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974 (ERISA). It currently guarantees payment of basic pension benefits earned by about 44 million American workers and retirees participating in over 35,000 private-sector defined benefit pension plans. Its operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by PBGC’s investment returns.