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Statement of Executive Director Steven A. Kandarian on court ruling in dispute between PBGC and US Airways

December 30, 2003

Judge Stephen S. Mitchell of the U.S. Bankruptcy Court for the Eastern District of Virginia issued a ruling yesterday in a case concerning the proper size of PBGC's claim against US Airways for underfunding in the pilots' pension plan, which the company terminated and transferred to the agency earlier this year. The court rejected US Airways' challenge to PBGC's claim. PBGC Executive Director Steven A. Kandarian issued the following statement:

"This ruling is a victory for the financial integrity of the federal pension insurance system. It upholds the commonsense view that it should not be cheaper to terminate a pension plan with the PBGC than with a private insurance company. The proper measure of PBGC's claim against the sponsor of an underfunded pension plan is the cost of buying annuities in the private marketplace. As Judge Mitchell's opinion makes clear, companies cannot use non-market assumptions to artificially slash pension underfunding and escape the true cost of their obligations.

"This ruling also affirms that PBGC's claim against sponsors who terminate their pension plans is governed by the Employee Retirement Income Security Act, not bankruptcy law. As an unsecured creditor, PBGC can only hope to recover pennies on the dollar for a plan's unfunded benefit liabilities, but those pennies add up. In the case of US Airways, PBGC's recoveries will be based on its filed claim of $2.1 billion, not the $890 million the company asserted. This is all the more important because the PBGC shares bankruptcy recoveries with participants in terminated plans, many of whom have already lost benefits as a result of the termination."

PBGC is a federal corporation created under ERISA. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in about 32,500 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and investment returns.

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PBGC No. 04-17