The Pension Benefits Guaranty Corporation (PBGC) and Corporate Bankruptcies
Editor's Note- We have set-up a separate article after November 25, 2009 for our article and items on the Federal Deposit Insurance Corporation.
For related and earlier items on this topic please see our article "Corporate Health Care and Pension Plans".
In respect to the issue of health care and pension plans for governmental organizations please see our article "Federal, State and Local Government Pension and Health Care Plans"
(1/29/19)- The Pension Benefits Guaranty Corp.(PBGC) filed papers Saturday in U.S. Bankruptcy Court in White Plains, N. Y.in opposition to the planned sale of Sears Holding Corp. to its chairman Edwin Lampert over a $1.5 billion funding gap that the agency says should sink his bid.
Mr. Lampert’s proposed a $5.2 billion bid to take over about 400 Sears stores and Kmart locations out of bankruptcy. The agency had anticipated years ago that Sears could file for bankruptcy, so the PBGC obtained an interest in the company’s Kenmore and DieHard trade marks
The proposed sale to Mr. Lampert’s hedge fund ESL Investments would sever the PBGC’s interest and the royalties they produce, according to the filing.
(1/26/15)- As noted in our item dated 12/31/15 below, the recently passed budget measure contained a provision allowing for reduced pension benefits for retirees covered by multi-employer retirement plans. In October, a bankruptcy judge allowed the Trump Taj Mahal Casino, which was purchased out of bankruptcy proceedings, to withdraw from a multi-employer fund.
Cutting retirees’ pension benefits could help save the Unite Here National Retirement fund, which covers thousands of casino workers, and as many as 200 funds in dire financial condition.
“The two big troubled plans are the Central States and United Mine Workers of America”, said Alicia Munnell, director of the Center for Retirement Research at Boston College.
One of the basic problems continues to worsen for pension funds, as well as for Social Security, in that with the aging of the population, there are fewer active workers left to cover the greater number of retirees.
(12/31/14)- The recently passed $1.1 trillion budget measure contains a provision that permits benefit cuts for retirees in some circumstances. The measure is aimed at multi-employer retirement benefits, which are plans that are jointly administered by unions and employers, but for which the Pension Benefits Guaranty Corp.(PBGC) last estimated that there was a $42 billion deficit. For more information on this matter please see our articles on Corporate Health-Care and Pension Plana-Part II.
There are about 1,400 of these multi-employer type plans, which cover about 10 million individuals. With a declining percentage of the number of active workers to the growing number of retirees, the fiscal health of these plans continues to weaken.
Under the bill, trustees of financially troubled plans could vote to cut retiree benefits. Participants of the plan could vote against cutting the benefits, their vote could be overridden for a plan that is considered big enough to pose a risk to the PBGC.
As of fiscal 2013, public employee funds had a long-term deficit of more than $1 trillion, and an average funding level of 72% according to the National Association of State Retirement Administrators
(12/4/14)- As of the end of September, the Pension Benefits Guaranty Corporation (PBGC) had total assets of $90 billion, and total liabilities of $152 billion. The agency, which was created in 1974, has two basic parts, consisting of the “single employer and “multiemployer” programs.
Most of us are familiar with the “single employer” pension program that is overseen by individual companies, “Multiemployer programs” are union sponsored pension plans involving multiple companies. The “multiemployer plans” has total assets of $1.8 billion, and total liabilities of $44 billion. The PBGC said that this program is liable to run out of money “in as little as 5 years.”
The “single employer” program has $88 billion in assets and total liabilities of $107 billion.
(11/19/14)- For its fiscal year ending September 30, 2014, the deficit for the Pension Benefits Guaranty Corporation grew to almost $62 billion, compared to its $36 billion shortfall at the end of September 2013. The deficit in multiemployer plans grew to $42.4 billion from $8.3 billion in 2013 (these are plans between unions and a group of employers).
Government officials stated that the multiemployer insurance program would be insolvent in 10 to 15 years, unless changes are made.
This is the 12th year in-a-row that the PBGC has run at a deficit.
(10/16/14)- The Pension Benefits Guaranty Corporation (PBGC) currently insures the retirement benefit for over 44 million workers, at last count. The 100 largest corporate pension funds have a $281 billion funding deficit, so far this year according to Milliman Associates, an actuarial consulting firm.
The recently passed Highway Trust Fund Act allows companies to base their liability calculations on the average interest rate over the past 25 years, instead of the past 2 years.
As of the end of 2013, the PBGC ran a $27.4 billion deficit. Under a federal law passed in 2006, companies need to eliminate their pension deficits over time. The agency paid out $5.5 billion last year to 900,000 retirees whose companies had gone bankrupt.
The cost for each employee covered by pension plans will rise to $64 by 2016 from $49 this year.
Motorola Solutions Inc. and Bristol-Myers Squibb Co., are the two latest examples of corporate America switching their pension insurance annuity plans issued by the insurers, who will take over their pension obligations. When a company drops out of its plan, the obligation is then assumed by the insurer, and the company no longer has to pay the premium to the PBGC.
The insurer receives a lump sum from the company, which it then uses to buy an annuity for the participants. The more companies that drop out of PBGC coverage, the weaker its funding becomes. All companies, whether weak or strong ,big or small, pay the same fee to the agency.
(7/6/14)- The Pension Benefits Guaranty Corporation (PBGC), the federal agency that covers multiemployer pension “is more likely than not to run out of funds in eight years, and highly likely to do so within 10 years”, according to the latest estimate from that bureau.. The PBGC collects insurance premiums from employers for the pensions of its employees, and helps retirees in insolvent plans by paying them reduced amounts.
The anticipated failure of several of the large multi-employer plans is raising this alarming specter. This year’s report estimates that the multiemployer plans faced a long-term deficit of $8.3 billion in fiscal year 2013. The back-up plan can still make payments now, despite the deficits.
(4/26/14)- A bankruptcy judge ruled that former American Airlines parent AMR Corp., doesn’t have the unilateral right to terminate health and welfare benefits for nearly 47,000 union and nonunion retirees.
The company, which exited bankruptcy last November through its merger with US Airways Group Inc., wanted to shift the cost of the benefits entirely to the retirees, while throwing them the bone of providing them access to benefits at a group rate.
AMR was seeking a summary judgment in a suit it brought during the bankruptcy case.
Judge Sean Lane of the U.S. bankruptcy Court ruled that the benefits programs largely “lack language categorically reserving” the company’s right to terminate or otherwise modify them. For more info on this matter please see our item dated 9/6/12 below
(3/29/14)- Because of the increased number of corporate bankruptcies and ensuing weakening it caused to the Pension Benefits Guaranty Corporation, Congress raised the fee companies must pay to the federal insurer for each employee that is covered up to $64 by 2016, up from $42 last year.
The PBGC is, at last official count running at a $35 billion net deficit.
The following is a quote from their website:
“Although PBGC has a net financial deficit, PBGC still has very substantial assets, and the day when we run out of money is years away. We now project that, absent changes, our multiemployer program will be insolvent within 10-15 years. PBGC's projections are consistent with projections made by actuaries of large troubled plans. That date is being moved up by changes in pensions and the room for maneuvering is shrinking every year. Administrations of both parties have proposed putting PBGC finances on the same basis as other government insurance programs and private insurance, by making PBGC’s Board responsible for setting premiums.”
(5/1/13)- Eastman Kodak Co. filed for bankruptcy protection in January 2012. One of its largest creditors was the U.K. Pension Plan to which it owed $2.8 billion. Although Kodak is headquartered in Rochester, N.Y., it had a large English operation, and about 15,000 British pensioners.
The company and the U.K. Pension Plan recently announced that they had agreed to a plan, subject to approval of the U.S. Bankruptcy Court, whereby the company will turn over the "personalized imaging" business to the pension plan. Included in the business would be the camera film and "document imaging" operations.
The deal will also yield about $325 million of cash and other value, including claims worth another $325 million. The pension fund will operate the businesses it is acquiring, and hopes to generate sufficient cash flow to pay the pensioners their monthly checks.
(1/3/13)- Hawker Beechcraft Inc. the Kansas based aircraft manufacturer currently in Chapter 11 bankruptcy, will jettison two of its underfunded pension plans when it exits bankruptcy protection, but said it had struck a deal with the Pension Benefits Guaranty Corp. to retain a third "hourly" plan covering more than 8,200 current and former union workers.
The company hopes to exit bankruptcy protection in the first quarter of 2013. The plans it is abandoning provide coverage for nearly 9,500 current employees and retirees who are part of its so-called salaried and base pension plans.
The PBGC will take over these two plans, in return for which the agency will get a $419.5 million unsecured claim against the company. This means that the PBGC will recover about 7 cents on the dollar, but it will pay the guaranteed pension benefits of up to $56,000 a year to the retirees it will cover.
Bankruptcy Judge Stuart M. Bernstein will consider approval of the deal at a hearing scheduled for January 17.
(9/6/12)- As a follow-up to our item dated 8/20/12 below, Judge Sean H. Lane of the U.S. Bankruptcy Court in Manhattan ruled that AMR Corp. can reject prior labor agreements with its pilots union, 20 days after he forced the company to make some 2 changes in its proposal.
The onus is now on AMR and the Allied Pilots Association to see if they can reach a settlement on a new contract, or else the matter will go before the judge again.
AMR's flight attendants and most of the ground staff voted in favor of new contracts even though give-backs had to be included in their new deals. As noted below, the pilots voted against the last proposal made by the company.
The 3 unions are in favor of the bankrupt airline merging with U.S Airways, and merger talks between the two are in the works.
Last month the judge requested that AMR change provisions in its labor proposal that he thought gave it too much discretion to enforce employee furloughs and forge code-sharing pacts with other airlines.
"Having addressed the two problematic items", Judge Lane said, he would allow AMR to reject the existing labor pacts.
(8/23/12)- The flight attendants at American Airlines voted in favor of accepting the company's final offer by 59.5% to 40.5%. The Association of Professional Flight Attendants said that 92.8% of the eligible 13,544 members took part in the balloting.
The approval by the flight attendants means that the company will not apply to the bankruptcy judge to void the terms of the contract between the company and this union, as opposed to the motion it has made to void the terms of the contract with the pilots' union that we discuss below.
AMR said that it needs to save $1.06 billion a year in overall labor costs, and about $842 million from its unions.
(8/20/12)- U.S. Bankruptcy Court Judge Sean Lane for the Southern District of New York ruled that AMR had overreached in two of its requests for the jurist to abrogate the terms of its contract with the pilots' union. Please see our item dated 8/13/12 below.
The requests he denied were to remove all restrictions on both furloughing pilots and outsourcing flying through code share agreements with other airline.
AMR General Counsel Gary Kennedy said the company would re-file its motion to abrogate the pilots' contract, since that request was not denied in Judge Lane's ruling.
(8/13/12)- Keeping an eye on the AMR Corp. bankruptcy case, as we discussed in our item dated 3/12/12, the latest news is that the union representing the American Airlines pilots rejected the last contract offer from the company in a 61% to 39% vote.
The rejection by the Allied Pilots Association means that U.S. Bankruptcy Court Judge Sean Lane, who is overseeing the reorganization, must rule on the company's motion to rescind the pilots' current labor contract. The head of the union announced his resignation because of his disappointment by his union members over the rejection of the last contract offer by the company.
Judge Lane's decision has far reaching implications for the many other labor contract agreements for companies that are presently in the bankruptcy courts.
(4/27/12)- The PBGC is currently responsible for benefits to 1.5 million people and provides retirement checks to more than 800,000 of them. As of September 30th, 2011 its deficit was $26 billion, up from $23 billion a year earlier.
The Government Accountability Office (GAO) includes the PBGC on its "high risk" list because of losses on its $78 billion investment portfolio, and the probability that the agency will have to take on more under-funded pension plans in future bankruptcies. Of particular concern is the pending AMR Corp. bankruptcy, wherein its pension plans are estimated to be under-funded by over $10 billion.
(3/12/12)- As a follow-up to our item dated 2/16/12 below, AMR Corp., announced that it would freeze rather than terminate 3 of the 4 employee pension plans, and that it would continue to work with the pilots union and the PBGC in connection with the 4th plan.
Freezing the plans means that the participants in those plans would retain the full value of the benefits the employees accrued before the freeze date. Those 3 defined-benefits plans would then be replaced by 401(k) plans for those employees.
The 4th plan, which is the pilots' plan, has a special problem for the company, since it allows the pilots to elect a lump-sum pension payment when they retire. More than half of the company's 10,000 pilots are currently eligible to retire, so they would be eligible for the lump-sum payments.
The PBGC estimated that the plans have assets of $8.3 billion to cover $18.5 in benefits. The agency is currently running about $26 billion in deficit.
(2/16/12)- The confrontation between AMR Corp., the parent of American Airlines and the PBGC promises to be a defining legal case in the matter of corporate America filing for bankruptcy in an attempt to avoid its pension obligations. Please see our item dated 1/27/12 for some background on this matter.
Two other companies that filed for bankruptcy recently, Eastman Kodak and Hostess Brands are also seeking to have their pension plans terminated in the bankruptcy court.
As a follow-up AMR Corp. has announced that it would seek to eliminate 13,000 jobs, terminate 4 of its pension plans and force its retirees to forgo their health benefits by being required to enroll in Medicare plans if the are eligible for same.
The termination of the 4 pension plans would represent the largest pension default in U.S. history. In order to be able to do same, AMR must convince U.S. Bankruptcy Court Judge Sean Lane that the company would not be able to successfully reorganize itself in bankruptcy without these changes.
Several rivals of AMR has shown an interest in taking over the airline or purchasing some of its assets. Initially the company and its unions will discuss the proposals for cuts by the company, but if they are unable to agree on the extent of the cuts, the company could petition the judge to let it modify the contracts with the union and impose the changes it is seeking.
The PBGC continues to oppose the termination of the plans and it has filed liens against many of the airlines international assets. "American is sitting on a pile of cash $4 billion high," said PBGC spokesman Jioni Palmer.
American paid only $6.5 million of the roughly $100 million that it was scheduled to pay into the plans by January 15.
(1/27/12)- The Pension Benefits Guaranty Corporation (PBGC) filed a request with U.S. Bankruptcy Court Judge Sean Lane that would require AMR Corp. to disclose the details of its underfunded pension plans.
AMR, which is this country's 3rd largest airline by traffic, sought bankruptcy court protection on November 29, 2011. Delta Airlines Inc., US Airways Group Inc., and the private-equity firm TPG Capital are studying bids for AMR, according to people familiar with the matter.
The PBGC estimates that the 4 defined benefits pension plans of the carrier covers 130,000 workers and has assets of $8.3 billion to cover $18.5 billion in benefits. At last count the PBGC already has a record deficit of $26 billion, so that taking over the AMR pension plans would increase that deficit even further.
U.S. law requires providers of private pension plans that are in bankruptcy to provide all details of plan participation, assets, liabilities and funding, so that the agency can determine whether any of the plans should be terminated to allow the company to successfully reorganize.
(12/6/11)- A recently released report by the inspector general of the Pension Benefit Guaranty Corporation showed that extensive errors had been made by the contractor hired by the agency to determine the exact amount of benefits pensioners were entitled to receive. A Congressional investigation in 2000, based on complaints from retirees determined that the contractor, Integrated Management Resources Group (IMRG) had done very inaccurate work. The matter was referred to the Justice Department.
Instead of replacing IMRG, the company was subsequently given even more work to do by the PBGC.
In highlighting the pension benefits of 4,400 United Airline retirees, the inspector general determined that many of them had been shortchanged by as much as $25 a month because of allegedly flawed valuations of the airline's pension assets. It turns out that as many as 23,000 United pension-plan members could receive higher payments due to the flaws.
Representative George Miller, a Democrat of California, had requested the audit report.
It is estimated that the recent filing for bankruptcy by the parent for American Airlines could mean that the PBGC might have to assume as much as $17.5 billion in pension benefits, if AMR Corp. decides to terminate its pension plans.
The report also noted that the agency paid IMRG "for work of two senior auditors for whom there was no documentation demonstrating completion of an accounting degree or 24 semester hours of accounting-the minimum educational requirements established in the contract."
The audit brings into question the accuracy of the work done to determine the exact amount of pension benefits due to the 1.5 million retirees now being covered by the PBGC.
The same federal official who had awarded the business to IMRG over the years, Bennie L. Hagans Jr. was responsible for monitoring the new accounting firm hired to oversee the work. He is scheduled to retire in a few weeks.
Integrated's job was to calculate the value of all assets in each company's pension fund on the day it was terminated in bankruptcy. In addition, it was Integrated's job to gather detailed personal information on each person in the plan, and also the salary and years of service for each person in the plan. The audit found that Integrated issued reports that contained "major factual errors".
The PBGC said it would make good on any shortfalls, plus interest that pensioners lost out on, while in the case of those who received overpayments, it would deduct a small amount from the pensioner's checks over the years to make up for the overpayment.
A spokesperson for Integrated asserted that the company acted on instructions from PBGC officials whenever it acted in these matters.
(10/22/11)- Friendly Ice Cream Corp., a large restaurant chain with 490 stores, filed a petition for bankruptcy this month because of its inability to meet its debt obligations. Sun Capital Corp. a private equity firm had taken the company private in 2007.
Sun lent Friendly $6 million in September and is owed $267.7 million in secured promissory notes according to papers that have been filed with the bankruptcy court.
Under an asset purchase agreement Friendly filed with the Delaware bankruptcy court, Sun plans to "credit bid" for the firm in a pending bankruptcy auction. Under the terms of the "credit bid" Sun would forgive some of the amount it is owed in exchange for retaining control of Friendly. Sun would not assume any liabilities "arising under any Employee Benefit Plan….including with respect to any underfunded pension liability."
The Pension Benefit Guaranty Corp. (PBGC) estimated that the Friendly pension plan is underfunded by about $50 million, which liability would have to be assumed by the agency.
Bankruptcy auctions often allow buyers to acquire companies "free and clear" of liabilities, including pensions. The pension plan would be left with Friendly's bankruptcy estate, which in all likelihood would have little or no assets.
Over the last 2 years, the PBGC has kept businesses from ending more than $4 billion in pension plans covering over 300,000 employees. The agency said that it would pay pension benefits to Friendly's employees if the plan is terminated, but at a reduced rate.
(6/11/11)- The Pension Benefit Guaranty Corp. (PBGC) is appealing a federal judge in the Southern District of New York's decision to throw out its $25 million lawsuit against Morgan Stanley over the firm's mishandling of St. Vincent Catholic Medical Center's pension plan.
St. Vincent Hospital in New York City, filed for bankruptcy and closed its main hospital in 2010. The PBGC took over the plan in the fall of 2010. St Vincent had brought the suit against Morgan Stanley in 2009. The lawsuit claimed that Morgan Stanley concentrated too much of the pension plan's asset in risky mortgage based securities, even as Morgan Stanley became aware of the deterioration taking place in that market. As a prudent investment advisor it should not have put over 50% of the plan's fixed-income side in the risky mortgage-backed securities market.
The federal judge dismissed the case in October,, 2010 saying that because of the firm's investment strategy, it "does not necessarily follow that Morgan Stanley acted imprudently or without proper investigation." The PBGC decided to join in the appeal of the district court's decision against its claims. The suit seeks the recovery of over $25 million.
(5/8/11)- Although this article deals with corporate bankruptcies, and the Pension Benefits Guaranty Corporation, the agency that protects an employee's pension benefits, there is a improving situation in regards to individuals bankruptcies that should be noted, since it is a further indication that the worst may be over from the effects of the recession of 2008.
The National Bankruptcy Research Center and the American Bankruptcy Institute reported 134,720 consumer filing in April, down nearly 6.8% from the same month a year ago. For the year, filings are 6.5% below the same period in 2010.
On the banking front, the number of failed banks this year through May 6 stood at 40, as opposed to the 157 bank failures that occurred in all of 2010. Slowly but surely the economy continues to show signs of improvement.
(11/28/10)- The Pension Benefits Guaranty Corporation (PBGC) disclosed that it paid about $5.6 billion to retirees in its last fiscal year, about 22 % more than in 2009. The number of retirees it pays each month rose to more than 800,000, as 172 more pension plans collapsed.
It began paying benefits to 109,000 more retirees over the past year, and its long-term deficit increased to $23 billion from $22 billion in 2009. Joshua Gotbaum, the new director of the PBGC stated that the agency convinced 38 companies to go into and out of bankruptcy without terminating their plans. He went on to say that this saved the pension plans for about 250,000 people.
The maximum yearly benefit that a person who is 65 years old when his or her pension plan fails is $54,000.
(4/16/10)- The pension plans at General Motors and Chrysler are under-funded by a total of $17 billion and could fail if the carmakers do not return to profitability, according to a report from the Government Accountability Office.
In the case of GM, it must make a payment of $12.3 billion within the next five years, while Chyrsler must make a payment of $2.6 billion within that same timeframe. Of course an exception may be granted so that stock can be paid into the fund instead of cash, which is exactly what happened a few years ago. In retrospect, this has turned out to be quite beneficial to the funds since the stock of GM has risen in value, even though the company is no longer a publicly traded issue.
The PBGC manages plans with assets totaling $68.7 billion, while the GM plan alone has $84.5 billion in assets. With the PBGC in deficit already, just imagine how much greater the liability would be if this plan failed.
GM's plan was over-funded by $18.8 billion in 2008, and was then under-funded by $13.6 billion last year. Chrysler's plan was over-funded by $2.8 billion in 2008, but under-funded by $3.4 billion last year.
The plans cover about 650,000 GM workers and retirees, and about 250,000.Chrysler workers and retirees.
(3/9/10)- The Pension Benefits Guaranty Corporation will assume the responsibility for all but $5 million of the under-funded pension plan for a joint-venture auto manufacturing plant that was established between Toyota Motor Co. and the General Motors Co. The plan had $161 million in assets and $292 million in liabilities.
The affected employees and retirees are workers of United Motor Manufacturing Inc., a vehicle assembler that has been jointly owned by the two companies since it was established in 1984. The joint venture manufactured about 400,000 vehicles a year. Production at the plant, which is located in Freemont, California, will cease at the end of this month.
The PBGC covers about 44 million workers and retirees as of the end of 2009.
(11/12/09)- Joshua Gotbaum, an operating partner at the investment firm Blue Wolf Capital was named by President Obama to be the next director of the Pension Benefits Guaranty Corporation. He is the son of Betsy Gotbaum, a former New York City public advocate, and Victor Gotbaum, a former union leader in New York City.
The agency's inspector general found in May that its former director, Charles E.F. Millard had inappropriate communications with Wall St firms.
Regulators on Friday shut small banks in Geogia, Michigan, Minnesota and Missouri, bringing the number of bank failures this year to 119. All of the banks will be taken over by other banks. The failure of the four banks is expected to cost the federal deposit insurance fund an estimated $132.7 million.
(11/1/09)- This week it was nine banks that federal regulators closed on Friday, bringing the total to 115 banks that have failed so far this year.
The nine banks that were closed on Friday were the most the FDIC has shut in one day since the financial crisis began last year. In 1989, at the height of the savings-and-loans crisis, the FDIC closed 539 banks, or about 10 a week.
Deposits as of September 30th totaled $15.4 billion at the closed banks. The nine banks had a total of 153 offices, which reopened Saturday as U.S. Bank branches. The banks were units of the FBOP Corporation, a privately held bank holding company in Chicago.
(10/29/09)- Federal regulators closed 7 banks on Friday, bringing the total number of bank failures this year to 106, with many more closures expected in the coming months.
The 106 failures are the most in a year since 1992, at the height of the savings and loan crisis. They have cost the FDIC about $25 billion this year.
(9/29/09)- Georgian Bank in Atlanta, the state's second largest bank, became the 95th institution closed by the Federal Deposit Insurance Company (FDIC) this year. The bank had five branches, with about $2 billion is assets and $2 billion in deposits. First Citizens Bank and Trust Company of South Carolina has agreed to assume all of the deposits.
The FDIC said the failure was expected to cost about $892 million, meaning that its insurance deposit fund is now below the $9 billion mark. Nineteen of the 95 banks that have failed this year have been based in the state of Georgia.
(9/25/09)- And the toll of failed banks keeps climbing. Since January of this year, the FDIC has seized a total of 94 failed banks. Even with the special assessment that was levied against banks a few months ago, the agency's balance is now slightly below the $10 billion mark.
Financial experts have estimated that the FDIC will have at least another $32 billion in losses because of additional failed banks in the coming month. The fund stands behind about $4.8 trillion in insured deposits.
One of the options available to the FDIC is to borrow money from the U.S. Treasury, or as the media has recently headlined to borrow any needed funding from some of the healthier banks. The lending banks would receive bonds from the government at an interest rate that would be set by the Treasury secretary, and ultimately be paid by the rest of the industry.
Sheila C. Bair heads the FDIC, and there are four other board members in addition to Ms Bair. Two of them are FDIC officials, with the others being the head of the Office of Thrift Supervision, and the head of the Office of the Comptroller of the Currency.
(9/3/09)- With the recent failure of two more banks, the total number of failed Federal Deposit Insurance Company (FDIC) banks has risen to 83 so far this year. The agency reported that its deposit insurance fund had dropped by 20%, to $10.4 billion, its lowest level in nearly 16 years. The number of "problem banks" increased to 416, from 305 in the first quarter, out of the nation's 8,195 banks.
So far 45 of those banks failed in the second quarter, and that is being reflected in the drop from $45 billion in the reserve fund at the end of the second quarter in 2008.
The Office of Thrift Supervision reported that the savings and loan association industry showed a profit of $4 million for the second quarter, the first time the industry has shown a profit since the fall of 2007. The number of "problem thrifts" rose to 40,up from 17 a year earlier.
Over all, banks charged off $48.9 billion, or 2.55% of assets, nearly twice the levels the industry reported last year.
(8/21/09)- The economic recession is not only bringing to the forefront the precarious financial condition of the Pension Benefits Guaranty Corporation (PBGC) because of all the corporate bankruptcies, but it is also illuminating the problem that the Federal Deposit Insurance Corp. (FDIC) now faces.
Five FDIC insured banks failed over this past weekend, bringing the total to 77 so far this year. The failure of Colonial Bank, a unit of Colonial BancGroup Inc. that was sold to BB&T Corp., will cost the agency $2.8 billion.
There have been 102 banks that have failed so far in the past two years. The agency's insurance fund has dipped to $13 billion, with more than 300 banks and thrifts still on an undisclosed FDIC list of problem institutions.
Thus both the PBGC and the FDIC are operating with depleted funds that will have to be restored in the near term.
(8/7/09)- Not unexpectedly, the Pension Benefits Guaranty Corporation (PBGC) continues to seize the pension plan of yet another bankrupt auto supply company. Previously, the PBGC had agreed to take on the $6.2 billion liability from the bankruptcy of the auto supplier Delphi Corp., as we discussed in our item date 7/30/09.
Metaldyne Corp., a manufacturer of auto power trains and chassis components had filed for bankruptcy in May of this year. The company's pension plan covers about 11,000 workers and retirees.
Earlier this year, the PBGC launched a campaign to encourage companies to come to it and negotiate changes to strained pension plans before plant closures or plan terminations.
(7/30/09)- The Pension Benefits Guaranty Corporation (PBGC) agreed to take on $6.2 billion in pension liabilities from bankrupt auto supplier Delphi Corp., making it the second largest ever, ranked by dollar. The largest bankruptcy ranked by dollar that the agency took on was the United Airlines bankruptcy in 2005, which totaled $7.5 billion.
As a result, the agency will take on the payments for about 70,000 workers and retirees that Delphi says is can't afford under its restructuring plan. About 135 companies have filed for bankruptcy this year, more than double the number for all of 2008
The PBGC's deficit has grown to $33.5 billion as of March 31, more than three times the number set six months earlier. It charges a flat annual fee of $34 for each participant, with an additional $9 for each $1,000 that isn't funded in a plan.
(6/5/09)- If a company files for bankruptcy, its pension assets can not be touched by its creditors since the pension plan is a "separate entity" from the company sponsoring the plan. Pension assets must be held separately from the company's regular business assets. When a company files for bankruptcy, it is oftentimes very difficult for an employee to get any answers from his/her company's human resource department.
The PBGC will pay a maximum of $4,500 a month ($54,000 a year) for a retiree who started getting payments at age 65. The maximum would be lower for those collecting payments at a younger age or for those who include benefits for a survivor or a beneficiary.
There are organizations that may help the "bankrupt" company's employees to get answers for any questions that may arise in connection with the plan. The Mid-America Pension Rights Project, is one of several free pension-counseling projects around the country, backed by the Administration on Aging that may be able to help an individual in this situation.
The Mid-America project's Web site is at elderlawofmi.org/pension_rights_project/index.html and the phone number is 866 735 7737
The federal Employee Benefits Security Administration also provides free help at dol.gov/ebsa or by calling 866 444 3272.
(5/25/09)- According to the latest figures, The Pension Benefits Guaranty Corporation's (PBGC's) deficit is now up to $33.5 billion, from the $11 billion mark as recently as October 2008. Since the agency has about $56 billion in assets, most of which is invested in Treasury bonds, it is not facing critical short term financing, but obviously this problem will have to be addressed sooner or later.
Congress created the agency in 1974, and it is presently responsible for pension programs covering 1.3 million workers and retirees. It pays about 640,000 people benefits worth about $4.3 billion a year. In the last 6 months, 93 companies whose pension plans are covered by the agency have filed for bankruptcy.
The recent filing for bankruptcy by Chrysler will cost the agency an estimated $2 billion, and it is estimated, that if GM files for bankruptcy, that will cost the PBGC an estimated $6 billion.
The agency's board voted last year to allow the trustees of its funds to increase its exposure for its investments to include a greater mix of equities in its holdings. Senator Herb Kohl, Democrat of Wisconsin and chairman of the Senate Special Committee on Aging will introduce legislation that would expand the agency's board and require it to meet at least four times a year. The board has not met in person since October 2008.
(4/20/09)- Much has been written and said about the possibility of the government's allowing GM to petition the court for bankruptcy. Well, lets look at some numbers if this does happen.
GM has an unfunded pension liability of about $13.5 billion, since it had about $84.5 billion in assets and $98 billion in liabilities as of December 2008. As of the end of last year, the PBGC had a deficit of some $14 billion. We are already at a point where the number of corporate bankruptcies continues to increase this year, thus meaning that this agency will be responsible for even more pensions for bankrupt corporations.It is estimated that its liability will grow to about $20 billion even in the absence of a GM bankruptcy
In addition to these increased liabilities that the PBGC will be responsible for, it is also faced with the prospect of a decrease in the value of the stocks in its portfolio, what with the recent drop in the market in 2008. At the same time we realize that this portfolio probably has bounced with the rally in the stock market in March and so far this year, but we at the same time realize that corporate America can not take an increase in premiums to participant corporations, since the weaker companies can not take on any added responsibilities.
The Supreme Court did order LTV Corporation, a steel company, to take back responsibility for its pension plan after it emerged from bankruptcy in 1990, but it is questionable as to whether or not that can happen again.
(11/3/08)- The Pension Benefits Guaranty Corporation (PBGC) has lost about $2.1 billion through August, and this figure is expected to grow considerably since it does not cover the months of September and October, when the stock market dropped precipitously.
Please see our item dated 3/1/08, when we at theubins stated our support for the new policy of increased exposure to equities, and away from fixed income even though this has resulted in a greater loss than if the agency had stuck with its prior portfolio allotment, which was geared more towards fixed income items.
We believe that it would be an erroneous decision to switch back to the increased fixed income allotment, without first giving the new setup at least 2 years of trial. The stock market will always fluctuate, so do not be influenced by any market movements over short periods of time.
As of August, the agency's portfolio had declined by $2.2 billion, while there were some slight gains in the fixed income portion of the portfolio.
Financing for the agency comes from the premiums that are paid into the system by participating companies, and this portion of its revenues are invested in Treasuries. The other assets come from company's that go into bankruptcy pension plans. This is the portion of the portfolio that took the big hit in the recent decline in the stock market.
The PBGC ran a $14 billion deficit last year, and this amount will surely grow this year. Please keep in mind that if you increase the premium that participating companies pay into the agency, this would make it even more difficult for companies teetering into bankruptcy to survive. The same difficulty would ensue if you make the weaker companies pay higher premiums than the stronger companies.
(9/28/08)-Judge Robert Drain of the U.S. Bankruptcy Court in Manhattan approved the new agreement between GM and Delphi Corp.. as we discussed in our item dated 9/22/08 below.
Thus Delphi won the bankruptcy court approval to shift $3.4 billion in pension liabilities to its former parent GM, as part of a deal that boosts GM's contribution to Delphi's bankruptcy reorganization to $10.6 billion.
Judge Drain also signed off on a separate financing agreement between the companies under which GM will lend Delphi an additional $300 million while it works to complete it's bankruptcy reorganization.
Under the pension agreement with its former parent, GM will take $3.4 billion in pension liabilities, up from $1.5 billion under the earlier agreement.
(9/22/08)- As a follow-up to our item dated 8/19/08 below, Delphi Inc. and GM announced that they had reached a new deal under which GM would increase its responsibility for the Delphi pension plan to $3.4 billion from the earlier figure of $1.5 billion. GM will be increasing its financial support to a total of $10.6 billion from $6 billion in the earlier plan with the hope that Delphi can emerge from its bankruptcy proceeding by the end of the year.
Delphi said it would freeze its pension plans for salaried and hourly workers once it had union permission to do so. It will seek court approval to do this on September 23rd. It will replace those plans with cash-balance or defined-contribution pension benefits, a salaried retirement and equalization-saving program, and a supplemental executive-retirement plan.
The deal between the two companies thus averts the threatened lien of $900 million by the PBGC. Delphi was GM's main parts-making unit until 1999 when GM spun it off. As of the end of 2007, GM's pension assets were $18billion overfunded.
In exchange for the extra funding, Delphi has agreed to include GM's claims in the bankruptcy case and to release GM from certain claims and causes of action in the filing.
(8/19/08)- The PBGC is trying to force Delphi, Inc, a company that has been in bankruptcy proceedings for over 2 years now, to transfer more than $1.5 billion of unfunded pension obligations to GM by September 30th. It is warning the company that if it fails to do so, it would lay claim to $8 billion in liability, for which it is already placing liens on some of the company's assets.
When GM spun off Delphi, its automotive parts supply subsidiary, it also spun off part of its pension fund to cover the workers shifted to Delphi. At that time GM agreed to take back part of that fund if Delphi were ever in severe financial trouble.
Delphi has been allowed to skip its pension contributions while in bankruptcy, and it also received waivers from the IRS that pushed back the due dates for future payments.
Delphi allowed the pension waivers to expire, so that on September 30th about $2.4 billion in contributions will come due. It does not have to produce that much in cash on that date, because of an eight-month grace period, but as it falls behind schedule, the IRS has authority to impose excise taxes of about an additional $3.4 billion.
In its S.E.C filings, GM estimated that the cost of all this support would come to about $11 billion. Please keep in mind that GM has incurred multi-billion dollar losses itself over the last few years, and the specter of bankruptcy overhangs GM itself. If GM is forced to go into bankruptcy the PBGC stands to incur a substantial hit to its asset position.
(3/1/08)- We at therubins fully support The Pension Benefits Guaranty Corp., (PBGC) and its director Charles E.F. Millard in its recently announced intention to diversify its investment policy towards having a greater exposure to equities and alternative investments, such as real estate in its portfolio. Under its present investment policy, the agency estimates that it has 72% of its assets in cash and fixed-income securities.
Under the new investment strategy plan, the agency's investment in equities would jump from 28% to 45%, with an additional 10% of the portfolio being invested in "alternative investments". It plans to keep about 45% of its portfolio invested in fixed-income items.
Obviously this strategy is a riskier one, but we feel that the potential for rewards far exceeds the risks of loss. With interest rates being at exceeding low levels, and with the stock market having corrected almost 20% from its recent highs it seems to us to be a propitious time to make this move.
The agency had built up a $9.7 billion surplus by 2000, but two factors caused the surplus to turn to a deficit of over $14 billion by 2007. First of all the great number of bankruptcies in industries such as the steel and airline industries threw many of these worker's pension over into the hands of the PBGC. Secondly, with the drop in interest rates, the factor used to calculate the present value of companies future pension obligations increased rapidly.
There is currently about $66 billion in under-funded pensions held by PBGC-insured companies with credit ratings below investment grade. This figure is sure to grow as the ratings of corporate America will continue to increase as more and more companies feel the pressure of our weakened current economy.
Many of you may ask, why we at therubins are in favor of increased equity exposure by the PBGC, when at the same time we opposed having individuals making their own decisions with their social security investments? Our answer to that question is because we feel that the professionals who will be making the decisions for the PBGC have much greater knowledge in the area of financials than does the average investor who usually does not have much financial fixed income and/or equity experience.
(5/14/07)- The judge overseeing the auto-parts maker Collins & Aikman Corp.'s bankruptcy case has approved a $96.2 million settlement between the company and the PBGC. The company, which is based in Southfield, Mich., is but one of several auto-supply companies in, or about to come out of. bankruptcy. One of the most important bankruptcy matters for all of corporate America is the one pending now between Delphi, the former subsidiary of GM, and the UAW, for its effect on corporate pension and health care obligations of all employees in this country.
The settlement gives the agency an $8.4 million claim that will be paid in cash on the day the company exits from bankruptcy. The PBGC will also receive an allowed general unsecured claim of $87.8 million under the company's Chapter 11 plan. The agency had a potential claim totaling $192 million against the company in connection with funding obligations for its pension plan that it will now be administering.
The two industries that cost the PBGC the most for pension plan failures are the airline and the auto supply companies in or out of bankruptcy.
(11/20/06)- For the second year in a row, the deficit of the Pension Benefits Guaranty Corporation (PBGC) continued to shrink. The agency revealed in its annual report, that as of September 30th it had assets of $60 billion to cover liabilities of $78.1 billion, leaving a deficit of $18.1 billion.
The reduction in the amount of the deficit was attributed mainly to a provision in the new pension law that allows bankrupt airline companies extra time to become financially viable.
The deficit for the PBGC reached its peak in 2004 when it was $23.3 billion, which dropped slightly to $22.8 billion in 2005. According to Vince Snowbarger, the interim director of the agency: "The PBGC's financial condition appears to have stabilized for the time being, ".
The agency is now responsible for the pension benefits of 1.3 million workers and retirees, reflecting no net change from last year. The amount of benefits paid increased to $4.1 billion this year from $3.7 billion last year. The amount is projected to increase to $4.8 billion next year.
According to the latest figures, traditional pensions are under-funded by $350 billion, compared with $450 billion last year. Higher interest rates, a better-performing stock market, improved credit ratings and better plan funding by some companies were the reasons given for the improvement, according to some economists.
(9/13/06)- One of the problems that many people face, what with the movement from one job to another, or one company taking over another company, is the fact that a person may lose track of his or her pension benefits from past jobs. The Pension Benefits Guaranty Corporation (PBGC) holds about $75 million in unclaimed benefits for almost 26,000 people whose defined-benefit plans were closed.
The average benefit that the agency holds is about $3,675, and the Labor Department estimates that 1,650 401(k) plans covering 33,000 workers, holding $868 million in assets are terminated each year.
The PBGC has a site that will help you find out if you do have any defined-benefit pension that you may have lost track of. To start your search, go to search.pbgc.gov. Type in your last name to find out if you are on the list of "lost" beneficiaries. You can also enter the company's name to see if the agency has taken over the plan.
If your search is to no avail there are other options for you to use to help you find your "missing" plan. The PBGC, in conjunction with the Pension Action Center at the University of Massachusetts, Boston developed a site that is a primer to use in helping you with your search. It is located at pensionaction.org/publications/lostpension.htm.
Another site that may help you in your search is FreeErisa.com, which has a huge database of pension-plan tax returns that include information about the plan administrator, service providers and actuaries. Another Web site, coporateaffiliations.com tracks mergers and acquisitions. The Labor Department's Employee Benefits Security Administration offers help searching for terminated or abandoned 401(k) plans through offices, listed at dol.gov/ebsa/aboutebsa.
(6/10/06)- Bankruptcy Judge Adlai S. Hardin in White Plains, New York, approved the agreement reached signed by Delta Air Lines and its pilots union wherein the 5,930 active pilots agreed to an initial 14% pay cut and not to contest the termination of the pilots' pension plan. In return for these concessions the company would issue a $650 million note, and $2.1 billion in unsecured claims to the union.
Both the PBGC and the retired pilots association opposed the settlement. The PBGC argued that it should have received the $650 million note and $2.1 billion in unsecured claims against the company since it now would be responsible for payments to be made to the pilots. Delta's pilots pension plan was many billions of dollars under-funded, and the federal agency will now have to pick up the pension payments.
The unsecured claim would be converted to a yet-to-be-determined stake in the reorganized company.
Delta agreed to give retired pilots $9 million to cover a portion of certain pension benefits that the retired pilots would have received since the bankruptcy filing in September, had the benefits not been frozen.
(4/5/06)- Negotiations to reconcile differences in federal pension overhaul legislation have stalled according to Senator Mike Enzi, chairman of the committee that is attempting to reconcile the different measures that had been passed by the House and the Senate. Time is of the essence, since most companies that have to make contributions to their traditional defined-benefit pension plans have until April 15th to do so.
For the past two years, companies had been able to use a more favorable blend of corporate bonds to calculate how much was required to be contributed, but that temporary provision expired on December 31, 2005. The yield on the 30-year Treasury bond will have to be used unless a new funding rate proposed in the pension legislation is approved.
A spokesman for the PBGC said that the Treasury bond rate would not apply until April 15th, 2007 for most plans. The higher the rate, the more the pension plan can assume it would earn in the coming years, so that the lower yield on the 30-year Treasury would mean that the plan would have to calculate a lower earning for the plan.
Bradley Belt, recently submitted his letter of resignation to President Bush effective the end of May as the executive director of the Pension Benefits Guaranty Corporation (PBGC). He will have served in that post for two years. Mr. Belt was a former senior staff member of the Senate Banking Committee and the Securities and Exchange Commission.
His resignation came unexpectedly, and is occurring during a difficult period for the agency. Because of the recent bankruptcies in the airline, steel and automotive supply industry, the deficit of the PBGC has ballooned to $22.8 billion. He had been at odds with the administration recently because of his desire to have more of an impact on the pending revision to the law affecting the PBGC.
The board of the PBGC includes the secretaries of Treasury, Labor and Commerce, who have become the administration's spokespersons on the pending revisions to the law.
The Pension Benefits Guaranty Corporation (PBGC) filed a solicitation for help in negotiations with GM over its plans to spin off a portion of General Motors Acceptance Corporation, its financing subsidiary. The agency did the same thing in the UAL Corp's United Airlines bankruptcy. This is done as a precautionary move in the event GM files for bankruptcy.
The purpose of this solicitation to hire an attorney for the GM matter is so that the agency has a heads up start on all of GM's assets, in the event they must take over the pension obligations of the company in bankruptcy.
(2/26/06)- The PBGC holds a 23.4% stake in UAL Corp., the parent of United Airlines, making it the largest single shareholder in the newly reorganized company. It holdings consist of 11.1 shares of the common stock of UAL and 5 million shares of 2% convertible preferred stock. Before the stock was issued on Feb.2, the PBGC sold $2.5 billion of its claim for $450 million, or 18 cents on the dollar, to hedge funds and banks. The agency may receive some additional shares in the company under the reorganization plan as it unfolds down the line.
Pacholder Associates Inc. of Cincinnati, which the PBGC hired as a special assets manager in late 1999, is managing the stock for the agency. Pacholder was recently acquired by J.P. Morgan Chase & Co.
(2/14/06)- The PBGC will sell about half of the 20% stake in UAL Corp., the parent of United Airlines, which recently emerged from bankruptcy protection. The agency became an unsecured creditor and largest single shareholder in UAL after the company shifted $10.2 billion in unfunded pension liabilities to the PBGC during the Chapter 11 bankruptcy proceedings.
The agency usually does sell equity stakes it receives in companies during bankruptcy proceedings in relatively short time frames after it can first does so. With the sale of the stock, and the $1.5 billion worth of additional notes and preferred shares it is receiving, the agency will recover more that the seven cents on the dollar that it normally realizes as an unsecured creditor in bankruptcies
The PBGC will however be responsible for the pension obligations of UAL's 120,000 workers and retirees. It will only pay a maximum amount as allowed by the law, so that many of the pension plan owners will receive much less than they originally thought they would be getting.
The PBGC has filed suit to seize the pension plan of WCI Steel, saying the plan was more than $100 million short of the amount needed to cover the planholders. The move is the first step toward holding WCI's corporate parent, the Renco Group, responsible for the money.
The Renco Group is a privately held company whose assets include many profitable operations in addition to WCI Steel. Its holding include Fair Field, the Hampton estate of Renco's founder Ira L. Rennert, which has an assessed value of $185 million. The estate is in Sagaponack, L.I., and it was the subject of a recent article in the New York Times.
The estate is said to include 29 bedrooms, 39 bathrooms, a 164-seat theater, two bowling alleys, a restaurant sized kitchen, a 2.5 million B.T.U. furnace, and a parking garage that could hold 200 cars.
A lawyer representing Renco on pension matters, Garry M. Ford, said Renco would not fight the pension agency's action, which he said was necessitated by a group of creditors trying to dump the pension plan. Mr. Ford said that the company fully supported the PBGC's effort. The note holders hoped to have the bankruptcy court allow them to move the other assets of the company out of the steel company, and leave the pension plan in an empty shell. If that happened, the agency would lose its ability to have Renco's other assets cover the pension shortfall.
When a pension fund defaults, the PBGC has the power to go after the assets of any companies that are more than 80% controlled by the same corporate parent. In this case Renco has more than enough assets to cover any of the pension's shortfall. Renco does not contest the fact that it has more than enough assets to make the pension fund whole.
WCI Steel's actuary estimated in 2003 that the pension plan owed the steelworkers up to $282 million, but had only $93 million in assets. The PBGC estimates that the shortfall is currently $117 million short. The government is threatening to put a lien on the Rennert estate, but for its claim to be in effect it had to make it before February 6 in Bankruptcy Court in Akron, where the note holders' plan of reorganization is being presented.
(1/22/06)- United Airlines, a unit of UAL Corp. filed for Chapter 11 bankruptcy on December 9, 2002. With the approval of its reorganization plan by Judge Eugene R. Wedoff of Federal Bankruptcy Court in Chicago the company shall emerge from the bankruptcy proceedings on February 1, 2006. The proceedings lasted over 3 years making it one of the largest and longest airline bankruptcies in history.
The company, which is based in Elk Grove Village Ill., has kept flying during this whole period of time, but when it emerges from bankruptcy it will be a much changed corporation from the one that went into bankruptcy court. United ranks second to AMR Corp.'s American Airlines among domestic carriers. At one point in its history it had been the largest airline in the world.
It has cut over $7 billion in costs; eliminated over 25,000 jobs; abolished its defined-benefit pension plan and may have set the template for bankruptcy proceedings for GM and Ford if either one or both of those companies ever go with a bankruptcy proceeding. It cut over 100 planes from its fleet, cut back on domestic flights and expended international flights.
It eliminated traditional pensions and replaced them with 401(k) plans. The final battle in this area took place this week when its flight attendants ended a yearlong battle against the company and reached tentative agreement on a substitute retirement plan.
(12/19/05)- By a vote of 294-132 the House passed a bill aimed at shoring up the Pension Benefits Guaranty Corporation (PBGC). Negotiations between the House and the Senate, which passed a bill on this same topic in November, are expected to take place early next year when Congress reconvenes. The White House expressed its displeasure at the House version of the bill, just as it did to the Senate version of the bill.
One of the biggest differences between the House bill and the Senate bill is the lack of a special provision in the House legislation to aid the airline industry. The Senate version of the bill gives the airline industry 20 years to shore up their pensions while the House version of the bill allows only 7 years for all industries to shore up any pension liability shortfalls. The administration does not favor any legislation that would give any industry an exemption from any "shoring" legislation.
The House measure would push companies to try and keep a full dollar set aside in trust for every dollar of benefits they have promised to their employees. Under current law companies can call their pension plans fully funded when they have just 90 cents set aside for every dollar that they owe.
The House bill would require companies to give its workers more detailed information and up-to-date information about the health of their pension plans. Both the House and Senate version of the reform legislation would require companies to pay higher premiums to the agency to cover its workers.
In both versions of the bill the premium would be increased to $30 per month per employee from its present level of $19 per month per employee, which has been in place since the agency was formed in 1994. Under the House version of the bill the premium would be indexed to the rate of inflation in the coming years.
The House version of the bill would allow healthy companies to phase in the premium increases over a 5-year period of time. Companies with weak pensions would only have 3 years to phase in the premium increases.
The House bill would allow hedge funds to handle pension money without being subject to the legal safeguards that cover most financial institutions. There are presently 44 million workers whose pension plans are covered by the PBGC, which represents about 20% of the private workforce in this country.
Companies are required to make their next pension fund contributions by April 15th 2006.
(11/22/05)- The White House said that it would veto the pension reform legislation that was passed by the Senate by vote of 97-2. Two different committees in the House have sent to the floor measures that each one passed. The differences in the two measures have to go to reconciliation before the House can act on the measure.
Once the House passes legislation on this topic, the differences between its bill and the Senate bill must go to conference to resolve the differences. The Senate measure would require companies to close any shortfalls in their pension funds and gives most of them seven years to do so. The proposed bill does allow the airline industry 20 years to close the shortfall gap.
The Senate bill would require companies to stop paying lump-sum distributions if their pension assets fell below 60% of the total pension obligations. Another provision of the bill would require companies to report the strength of their pension plans to employees every year.
The Senate legislation would raise the fee to $30 per employee per month from its present level of $19 per employee where it has been at since the PBGC was first formed in 1974. There are about 34 million employees covered by the PBGC, so the rate increase would add an additional $374 million for the agency. Under-funded plans are required to contribute an additional $9 for each $1,000 of their pension-plan deficits.
The PBGC issued its report recently showing that its deficit in single-employer pension plans shrunk to $23.1 billion in the fiscal year that ended September 31 2005 compared with a deficit of $23.5 billion in 2004. This report however was issued with the caveat that the shortfall would have grown to $25.7 billion if it had included companies in it that terminated their plans after September 31.
"Unfortunately, the financial health of the PBGC is not improving," said Executive Director Bradley Belt. The agency absorbed 120 terminated company plans in fiscal 2004, with a total of $21.2 billion in liabilities owed to about 235,000 current employees, and $10.5 billion in assets. Northwest Airlines, Delta Airlines and Delphi Corp. have not decided yet as to whether to ask the bankruptcy court to shift their pension plans to the PBGC. According to the PBGC these companies have under-funded plans totaling over $15 billion in assets. The agency also stated that total under- funding of company's plans comes to about $450 billion.
When a company goes into bankruptcy the judge can only rule yes or no on any request that it may make to him to void the company's labor contracts and pension obligations. The judge can't mediate terms on these issues. The judge will appoint a referee to hold hearings and make a recommendation to him on these issues. Usually the company and its unions negotiate on these issues before turning the matter over to the bankruptcy judge.
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By Allan Rubin
updated January 29, 2019