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PBGC Moves to Protect Pensions at Lehman Brothers Holdings Inc

December 12, 2008

WASHINGTON-The Pension Benefit Guaranty Corporation (PBGC) today initiated court action to protect the benefits of more than 26,500 workers and retirees of Lehman Brothers Holdings Inc. and its subsidiaries. Lehman is a New York City-based financial services firm that is operating under bankruptcy court protection.

According to PBGC estimates, the pension plan is 95 percent funded, with $898.2 million in assets to cover $940.8 million in benefit liabilities. If the plan ends, the agency expects to be responsible for $17.9 million of the $42.6 million shortfall.

The PBGC filed papers to seek approval from the U.S. District Court in Manhattan to end the Lehman Brothers Holdings Inc. Retirement Plan. The pension insurer's move comes ahead of a Dec. 22 bankruptcy court hearing on the sale of Lehman subsidiaries that make up the firm's investment management business. The agency acted to end Lehman's pension plan prior to the sale so that the subsidiaries being sold remain liable for the pension plan's unfunded benefit liabilities. Under the Employee Income Retirement Security Act of 1974, the federal legislation that created the PBGC, the agency is empowered to collect claims from members of a plan sponsor's controlled group, such as the subsidiaries of Lehman's investment management business that may be sold this month. Such entities are directly or indirectly 80-percent owned by their parent company.

The PBGC acted to end Lehman's plan because it stands to be abandoned following the liquidation of substantially all the firm's assets, and the increased financial risk to the PBGC if the subsidiaries involved in the current sale exit the controlled group and escape liability for the pension plan. None of the buyers have assumed responsibility for the pension plan. The agency believes that Lehman's non-bankrupt controlled group members could afford to take care of the pension plan. Should that fail to happen, the agency will take over the assets and use insurance funds to pay guaranteed benefits earned under the plan, which will end as of December 12, 2008. Assumption of the plan's unfunded liabilities will have no material effect on the PBGC's financial statements, according to generally accepted accounting principles.

Until such time as the PBGC becomes trustee, the pension plan remains ongoing under Lehman's sponsorship.

Founded in 1850, Lehman Brothers started as a cotton trading company based in Montgomery, Ala. After more than a century of expansion through sales and mergers, the company was spun-off from American Express in 1993 and became public in 1994.

Lehman's problems became evident earlier this year amid tightening credit markets and the loss of liquidity. Unable to borrow cash to maintain operations, the firm filed for Chapter 11 protection in the U.S. Bankruptcy Court in Manhattan on Sept. 15. On Sept. 20 the court approved the sale of substantially all of Lehman Brothers' capital markets and investment banking operations to Barclays Capital Inc. for $1.75 billion.

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. 09-06