The case concerns the regulations governing the calculation of the sum of money the PBGC can collect when it takes over a bankrupt firm?s under-funded pension plan, which some say give the agency an unfair advantage over other creditors.

 A company’s pension liabilities are based on assumptions about mortality, retirement age and interest, and generally mirror the market price of an insurance company annuity contract.

$50 Million Question

The PBGC claimed $49.7 million in unfunded pension liability, reaching the number by subtracting $176.4 in liabilities from the steel makers plan assets of $126.7 million.

A bankruptcy trustee for Copperweld Steel Co disagreed with the claim, as did the judge, who reduced the claim by 96% to $1.8 million. A federal district court upheld the ruling, as did the Sixth US Circuit Court of Appeals, concluding that the regulation did not extend to bankruptcy proceedings. 

PBGC attorneys defended the calculation, arguing that the rule prevented employers, wishing to rid themselves of unwanted financial burdens, from dumping their pension plans on the PBGC, noting that eight of the 10 largest pension plan terminations in the PBGC’s history involved bankruptcies.

Surplus

But attorneys for Copperweld’s bankruptcy trustee pointed to the $9.7 billion surplus in the program and noted that the Sixth Circuit wasn’t the first to reject the PBGC regulations. 

The Supreme Court in 1999 let stand a decision that reduced a bankrupt Colorado steel producer’s liability by almost $100 million. 

– Camilla Klein