The Pension Benefit Guaranty Corporation (PBGC) released the following statement today on Avaya’s new plan of reorganization, including the proposal to maintain its pension plan for hourly employees but end its pension plan for salaried employees.
PBGC’s mission is to protect the pension benefits of American workers and retirees. PBGC works with financially troubled employers to help them preserve their pension plans and avoid plan failure. But when companies’ finances no longer support keeping their pension plans, PBGC steps in to pay participants’ lifetime benefits, up to the legal limits on PBGC’s guarantee. For workers and retirees in underfunded pension plans that end, the PBGC’s guarantee is critical to their retirement security.
Avaya sponsors two significantly underfunded pension plans that are insured by PBGC: one for hourly employees and one for salaried employees. The Avaya pension plan for salaried employees covers nearly 8,000 participants and has been frozen since 2003. The plan is 58% funded, with plan assets of $1.5 billion and liabilities for future benefits of $2.6 billion, and thus is underfunded by $1.1 billion. The Avaya pension plan for hourly employees covers approximately 6,900 participants and benefit accruals are not frozen. The plan has assets of $800 million and liabilities for future benefits of $1.4 billion, and thus is underfunded by $600 million. Avaya also sponsors a non-qualified, supplemental pension plan for certain salaried retirees that is not insured by PBGC.
Avaya filed for bankruptcy protection in January, 2017. The company's original reorganization plan proposed to keep both PBGC-insured pension plans ongoing upon emergence from bankruptcy. However, the company and its secured creditors have now concluded that Avaya can support and keep the hourly pension plan but that termination of the pension plan for salaried employees is necessary for the company to emerge from bankruptcy.
Under Avaya’s new plan of reorganization, the company will keep its hourly pension plan but seek bankruptcy court approval to terminate and transfer its plan for salaried employees to PBGC. The new plan of reorganization is subject to approval by the bankruptcy court. Included in the company’s new reorganization plan is an agreement between Avaya, its first lien secured creditors and PBGC. The agreement specifies the recovery amounts that PBGC would receive on its claims against Avaya if the company’s application to terminate the pension plan for salaried employees is approved.
At this time, the Avaya pension plans remain ongoing and under the responsibility of Avaya. Avaya pension plan participants with questions about their benefits should contact the Avaya Pension Service Center at 844-868-6236, Monday-Friday, 9am-6pm ET.
PBGC covers the Avaya pension plans under its single-employer pension insurance program. For information on the PBGC and benefits guaranteed by PBGC for single-employer pension plans, see PBGC Guaranteed Benefits. For additional information see Questions and Answers for Participants in the Avaya Pension Plans.