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The Best-Saved Plans

March 29, 2012

When the best-laid pension plans go away, PBGC is there to help. But the “best-saved plans” are the ones we never trustee.

When an employer proves it absolutely can’t keep its pension plan, PBGC steps in to pay retiree benefits, up to the limits set by law. But it’s a lot better for everybody—especially retirees—when a company can keep its own pension promises without having fall back on our guarantees.

In 2011 we worked with 19 firms in bankruptcy to keep their pensions going. As a result, 74,000 people kept their full pension benefits – which isn’t always the case when the PBGC safety net comes into play.

Congress limits the amount we can pay in benefits a number of ways, including a maximum guarantee of less than $56,000 per year. In addition, PBGC cannot pay health and welfare benefits or cost of living adjustments.

“PBGC is always ready to provide a safety net to employees whose companies can no longer afford their commitments, but that doesn't mean that it's good for employees and retirees when we do,” says Director Josh Gotbaum.

Last year, such measures also kept about $2 billion of obligations off the agency’s books, at a time of record high deficits.

The work to preserve pensions continues non-stop. Most recently, PBGC has been especially active in pushing for AMR Corp. – the parent company of American Airlines – to keep their pensions if they really can afford them.

Who benefits from such an approach? Perhaps the better question is, “Who doesn’t?”

It’s better for the people covered by those plans, it’s better for PBGC’s finances, and it keeps pension promises in the hands of the people who made them, the employers.

How does it work? Since PBGC has a financial stake in a failing sponsor’s underfunded plan and, as a consequence, one of the largest claims against the firm, bankruptcy courts often give us a place on an unsecured creditors committee. Where possible, the agency uses this leverage to convince the company and the court to continue a pension plan when the firm emerges from bankruptcy.

Not all companies survive bankruptcy; inevitably, some are liquidated and their assets sold. But even then, PBGC can prevail in keeping plans ongoing by convincing the buyers of failed companies to continue their plans.

“Our primary goal is to do whatever we can to keep pension plans ongoing,” says an employee of PBGC’s Office of Negotiations and Restructuring. “In bankruptcy situations, we determine whether a company trying to reorganize can afford to keep its plan.”

“Just because a company files bankruptcy does not mean that plan termination is inevitable.”

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