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News & Policy

Court Upholds PBGC Order Protecting Hospital Employee Pensions

July 28, 2004

WASHINGTON - A federal appeals court panel unanimously upheld an order by the Pension Benefit Guaranty Corporation (PBGC) requiring Wilson N. Jones Memorial Hospital of Sherman, Texas, to pay additional benefits of more than $3 million plus interest to some 800 workers covered by the hospital's terminated pension plan.

The hospital had closed the pension plan in a standard termination, which requires plan sponsors to pay off all benefit obligations through a combination of lump sums and annuities purchased from a private-sector insurance company. PBGC audited the termination and found that the hospital underpaid lump sum benefits by using the wrong interest rate factor. The hospital disputed the finding and PBGC's order.

"This ruling serves as a useful reminder that PBGC plays an active role in auditing standard terminations," said PBGC Executive Director Brad Belt. "When we find something amiss, we will take all necessary steps, including legal action, to ensure that employers pay benefits in full."

The U.S. Court of Appeals in New Orleans, in an opinion dated July 1, affirmed a lower court decision backing PBGC's ruling that the hospital erred in calculating lump-sum pension payments and thus failed to provide for all benefit liabilities as required in a standard termination of a pension plan.

The pension plan terminated as of December 31, 1995, and the PBGC audit followed. The appeals court decision caps three years of litigation in which the agency sought to enforce its audit findings. The decision does not affect those participants in the hospital plan who receive their benefit as monthly payments for life and not as lump sums.

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. 04-58