PBGC Protects U.S. Pension Plans of Varig S.A.
FOR IMMEDIATE RELEASE
October 22, 2007
WASHINGTON-The Pension Benefit Guaranty Corporation (PBGC) today announced it has assumed responsibility for two pension plans covering more than 800 U.S. employees of Brazilian air carrier Varig S.A.
The PBGC stepped in because the pension plans would be unable to pay benefits when due and faced abandonment following the sale of substantially all the company's assets during reorganization proceedings in Brazil.
On June 17, 2005, Varig entered reorganization proceedings in Brazil and filed for Chapter 11 protection in the U.S. Bankruptcy Court in Manhattan. Major issues in the case were under the jurisdiction of the Brazilian court, including all claims against Varig's assets.
Varig's former cargo unit Varilog purchased most of the company's operating assets and intellectual property for $20 million in cash and $46 million in debt instruments on July 20, 2006. The transaction did not include the pension plans. Varig no longer has operations in the U.S. and has no flight operations in Brazil.
Varig retirees will continue to receive their monthly benefit checks without interruption, and other workers will receive their pensions when they are eligible to retire.
Together, the Varig Brazilian Airlines Salaried Pension Plan and the Varig Brazilian Airlines Hourly Pension Plan are 74% funded, according to PBGC estimates, with assets of $59.4 million to cover about $80.6 million in benefit liabilities. The agency expects to be responsible for the entire $21.2 million shortfall.
The agency will take over the assets and use PBGC insurance funds to pay guaranteed benefits earned under the plan, which terminated on Feb. 28, 2007. The PBGC became trustee of the plan on Oct. 2, 2007. Assumption of the plan's unfunded liabilities will have no material effect on the PBGC's financial statements, according to generally accepted accounting principles.
Within the next several weeks, the PBGC will send notification letters to all plan participants. Under federal pension law, the maximum guaranteed pension at age 65 for participants in plans that terminating in 2007 is $49,500 per year per year. The maximum guaranteed amount is lower for those who retire earlier or elect survivor benefits. In addition, certain early retirement subsidies and benefit increases made within the past five years may not be fully guaranteed.
Workers and retirees with questions may consult the PBGC Web site, www.pbgc.gov or call toll-free at 1-800-400-7242. For TTY/TDD users, call the federal relay service toll-free at 1-800-877-8339 and ask for 800-400-7242.
Retirees of Varig who draw a benefit from the PBGC may be eligible for the federal Health Coverage Tax Credit. Further information may be found on the PBGC Web site at http://www.pbgc.gov/workers-retirees/benefits-information/content/page13692.html.
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 30,000 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. 08-06