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Risk Mitigation Program

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Under the Risk Mitigation Program (also called the “Early Warning Program”), PBGC monitors certain companies with underfunded defined benefit pension plans to identify corporate transactions that could jeopardize pensions and to arrange suitable protections for those pensions and the pension insurance program. This program allows PBGC to prevent losses before they occur, rather than waiting to pick up the pieces when a company goes bankrupt and its financial resources are limited. In Technical Update 00-3 , issued in July 2000, PBGC provided detailed guidance on the narrow circumstances in which PBGC may contact companies, the transactions likely to cause PBGC concern, the situations in which PBGC may seek protections for the pension insurance program and the types of protections PBGC may seek.

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Screening Criteria

PBGC focuses on companies that are financially troubled or have a significantly underfunded pension plan. PBGC will contact a company for further information about a transaction only if (1) the company has a below-investment-grade bond rating and sponsors a pension plan with a current liability in excess of $25 million or (2) the company (regardless of its bond rating) sponsors a pension plan that has a current liability in excess of $25 million and that plan has unfunded current liability in excess of $5 million. PBGC will use the most recent bond ratings published by major rating agencies and will compute a plan's unfunded current liability using the most recently filed Form 5500, Schedule B. The Corporation is particularly concerned about transactions that substantially weaken the financial support for a pension plan, such as the breakup of a controlled group, a transfer of significantly underfunded pension liabilities in connection with the sale of a business, or a leveraged buyout.

PBGC will not make an inquiry about a proposed business transaction just because a company or plan meets the screening criteria. PBGC will get involved only if the transaction appears to pose a significant increase in the risk of long-run loss to the pension insurance program or the Corporation requires additional information about the transaction to make this judgment. The new screening criteria, which were announced in Technical Update 00-3, has reduced the number of corporate contacts PBGC made with respect to companies not in bankruptcy who were undertaking corporate transactions. PBGC encourages companies and their advisors to contact the Corporation in advance of a transaction to avoid any uncertainty about PBGC's interest in the transaction.

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How it works

The key to the program is identifying those companies that represent PBGC's biggest risks and stepping in early to negotiate additional protections when problems are identified. PBGC has developed specialized tools, technology, and financial expertise so that it can meet companies on their own terms. PBGC staff use financial information services and news databases and technology. PBGC also relies on information sharing among the Department of Labor, the Internal Revenue Service and the Securities and Exchange Commission.

Once PBGC has identified a potential transaction that could jeopardize the pension insurance program, the Corporation meets with corporate representatives to negotiate additional contributions or security (which may include letters of credit or financial guarantees) for underfunded pensions within the context of the transaction. PBGC will work with the company to tailor a settlement that is appropriate to the business transaction and financially feasible for the company.

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PBGC's Early Warning Program has raised awareness of pension underfunding and is changing corporate behavior. Corporations understand that good pension practices are part of good business. More companies are focusing on the pension plan's treatment earlier in transactions, and more companies are approaching PBGC in advance of transactions to structure protections for their pension plans.

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Contact Us

Calls should be made to Dana Cann, Director- Corporate Finance and Restructuring Department, at (202) 326-4070, extension 3810 (e-mail: or, in his absence, Ajit Gadre, Manager- Corporate Finance and Restructuring Group at (202) 326-4070, extension 3655 (e-mail: