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Risk Mitigation & Early Warning Program


The Pension Benefit Guaranty Corporation (PBGC) was created in 1974 to protect the pensions of working Americans and provide benefits to participants when pension plans fail. PBGC now insures over 31 million American workers, retirees, and their families in private sector defined benefit pension plans.

Congress gave PBGC a mission to:

  • Encourage the continuation of plans for the benefit of their participants; and
  • Maintain premiums at the lowest level consistent with carrying out our obligations. 

An important aspect of the pension preservation mission is PBGC's Early Warning Program (EWP) for single-employer plans, which dates back more than 20 years.  Under the EWP, we work with employers to preserve their pension plans and protect the retirement security of their workers and retirees.

In recognition of its success, the Early Warning Program received two awards.  It was among the first federal programs to win an Innovations in American Government Award, presented annually by the Ford Foundation and Harvard University's John F. Kennedy School of Government to honor creative government solutions to pressing social and economic problems.  The program also was honored with a National Performance Review award in appreciation for "building a government that works better and costs less!"

In addition to PBGC's express statutory mission, further authority for the Early Warning Program is found in ERISA section 4042(a)(4), which states that PBGC "may institute proceedings . . . to terminate a plan whenever it determines that the possible long-run loss of the corporation with respect to the plan may reasonably be expected to increase unreasonably if the plan is not terminated." Our experience under the EWP is that we can avoid terminating a plan by working with the plan sponsor to obtain protections before a business transaction significantly increases the risk of loss.

PBGC regularly monitors corporate transactions or events that could affect a plan sponsor’s ability to continue to support its pension plan. PBGC internally identifies about 100 transactions or events each year that are potentially of concern and engages the plan sponsors to obtain additional information. (View a sample information request form.) We assess the impact of these situations based on each employer’s financial and operational ability to support its pension promises. We may follow this initial inquiry with a more in-depth review.

In a handful of cases each year, PBGC and sponsors will enter into agreements that provide significant protection to the affected plans and the pension insurance system.  Over the last 5 years, of the 100 initial transactions or events for which we made contact with plan sponsors, we entered into an average of 5 settlements (including modifications) each year—5% of identified events. See a list of Early Warning Program Agreements.

Risk Identification:

PBGC reviews corporate transactions or events that may pose an increased risk to plans and the pension insurance system relating to employers that sponsor pension plans.  Our monitoring efforts focus on plans with: (1) underfunding of $50 million or more; or (2) 5,000 or more participants, determined on an aggregate controlled group basis. 

Transactions or events that may be of concern include:

  • A change in the group of companies legally responsible for supporting a pension plan (a controlled group), including a spinoff of a subsidiary;
    • When a controlled group is split up, a plan may remain with or be transferred to a financially weaker sponsor or a sponsor made weaker by separation from the controlled group.
    • A transfer of significantly underfunded pension liabilities related to the sale of a business;
    • As in the case of a controlled group breakup, a plan may be left with or transferred to a weaker sponsor or controlled group.
  • A major divestiture by an employer that retains significantly underfunded pension liabilities;
    • Remaining business entities may not generate sufficient revenue to be able to afford the plan.
  • A leveraged buyout involving the purchase of a company using a large amount of secured debt;
    • The sponsor's debt service requirements may make it difficult for the firm to afford to maintain its pension plan; risk of loss to participants and PBGC's premium payers is then greater.
    • In a leveraged buyout, this risk is magnified because the new debt is secured by company assets, which have priority over unsecured obligations such as pension funding obligations and PBGC's claim for underfunding.
  • A substitution of secured debt for a significant amount of unsecured debt;
    • Lender requirements for secured debt may signal that the sponsor is facing challenges that could put plan funding at risk.  Additionally, in the event of bankruptcy, secured debt reduces PBGC recoveries on claims for unpaid pension contributions and unfunded pension liabilities.
  • The payment of a very large dividend to shareholders;
    • A plan sponsor that uses its free cash flow or debt proceeds to pay substantial dividends or buy back its own stock may not leave itself with sufficient resources to fund its pension plan.

Information Requests:

PBGC learns of a transaction or other event from its own monitoring efforts, reports in the financial press, and notices provided by companies as reportable events under section 4043 of ERISA (see Reportable Events and Large Unpaid Contributions).  As these sources can contain limited information, we may follow up with the employer to get more information.  ERISA Section 4003(a) authorizes us to gather such information. (View a sample information request form.)

PBGC will generally request the following information:

  • Event - To help us understand the potential impact on the sponsor (and its controlled group members and its pension plans), we need information to help us assess how the event will affect the companies responsible for the plan and the cash flow available to support the plan.
  • Controlled Group - To help us understand the financial support the plan has available to it (both before and after a transaction), we need information about the ownership structure of the sponsor and each controlled group member.
  • Credit Quality - To help us understand whether the financial health of the sponsor and its controlled group may deteriorate as a result of an event or transaction, we need current and projected financial information about the sponsor and any members of its controlled group.
  • Pension Plan(s) - To help us assess the health of the plans, we review recent actuarial information about the plans, including the most recent actuarial valuation report, latest market value of plan assets, contribution history, and information about any events that have had a material effect on the plans since the last actuarial valuation.

PBGC does not ask for publicly available information or that which has already been provided to us, and we routinely enter into confidentiality agreements with sponsors to protect private business information.

If we conclude that no further action is necessary after reviewing the additional information submitted, we will close the inquiry and notify the plan sponsor.

Negotiated Protections:

If PBGC concludes that a transaction or other event could increase the risk of plan failure, we work with the sponsor to structure financial protections to participants and the pension insurance program.

Examples of negotiated protections that employers have provided to their plans:

  • Cash Contributions - The sponsor agrees to make cash contributions to its plan in excess of minimum funding requirements.  Added contributions can improve a company's balance sheet, reduce future funding requirements and premium obligations, and enhance plan affordability.
  • Letters of Credit - The sponsor provides PBGC a letter of credit to secure its agreement to make future pension contributions or to secure a plan's unfunded liabilities.
  • Security interests - The sponsor grants PBGC a security interest in specific company assets to secure a plan's unfunded liabilities.
  • Guarantees - A related entity agrees to assume the pension plan or guarantee payment of termination liability if the financially weaker sponsor/controlled group cannot support the plan following the transaction.

We encourage sponsors and their advisors to contact PBGC before a transaction or other significant corporate event to discuss the outlook for the plan, both to develop ways to strengthen the pension plan and to avoid disruption to corporate plans or actions. PBGC’s Corporate Finance and Restructuring Department can be contacted at (202) 229-4070.

For additional information on the program, view our Risk Mitigation & Early Warning Program FAQs.

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