PBGC Takes Step to Protect Participants in Enron's Underfunded Defined Benefit Pension Plans
FOR IMMEDIATE RELEASE
June 03, 2004
WASHINGTON-The Pension Benefit Guaranty Corp. announced today that to protect the participants in the underfunded pension plans of Enron Corp., the agency is initiating an action that it hopes will preserve all the benefits that Enron promised to its workers.
"The procedural step PBGC is taking today is designed to ensure that enough money remains available to fully protect the pensions of Enron's workers and retirees," said PBGC Executive Director Bradley D. Belt. "Acting now preserves assets that Enron can use to pay a private insurance company to take over its pension plans, which would provide full benefits and preserve the option to receive lump-sum payments."
By filing its notice of determination to terminate four of Enron's defined benefit pension plans, the PBGC matures its claim against the company for the underfunding in those plans, preserving assets that would otherwise flow from the bankrupt company to other creditors. The four plans, which have roughly 17,000 participants, are the Enron Corp. Cash Balance Plan, Garden State Paper Pension Plan, Enron Financial Services Pension Plan, and San Juan Gas Company Pension Plan.
The confirmation hearing for Enron's plan of reorganization begins today. The reorganization plan makes inadequate provision for either maintaining the Enron defined benefit pension plans or placing the pension obligations with a private sector insurance company. After confirmation, the plans would be left behind with a liquidating trust that is paying out all of its assets to other creditors.
Under Title IV of the Employee Retirement Income Security Act of 1974 (ERISA), the PBGC has a claim for joint and several liability against all of a plan sponsor's controlled group members. Once Enron's plan of reorganization is confirmed, the controlled group will be broken and PBGC's ability to recover funds will be severely impaired. By acting now, the ability to secure a full recovery from the controlled group's roughly $13.8 billion in value is strengthened.
"We know there are sufficient assets to settle the pension obligations in a way that preserves full benefits, and we need to act to ensure that those assets do not go out the door," Belt said. "We hope we don't have to take over these pension plans, and we remain committed to working with all stakeholders to ensure an outcome that serves the interests of participants."
The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 31,000 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 by investment returns.
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PBGC No. 04-48