PBGC is a federal agency created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect pension benefits in private sector defined benefit plans - the kind that typically pay a set monthly amount at retirement. If your pension plan is insured by PBGC and it ends without sufficient money to pay all benefits, PBGC's insurance program will pay you the benefit provided by your pension plan up to the limits set by law.
PBGC receives no taxpayer dollars. Its operations are financed by insurance premiums, investment income and with assets and recoveries from failed single-employer plans.
Avaya sponsors two significantly underfunded pension plans that are insured by PBGC:
The Avaya Inc. Pension Plan for Salaried Employees
The Avaya Inc. 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. Avaya has sought bankruptcy court approval to terminate this plan and transfer it to PBGC. Avaya’s proposed plan of reorganization requires termination of this pension plan.
The Avaya Inc. Pension Plan
The Avaya Inc. Pension Plan covers approximately 6,900 hourly employees and retirees, 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 intends to keep this pension plan ongoing when it emerges from bankruptcy.
Avaya also sponsors the Avaya Inc. Supplemental Pension Plan, a nonqualified, supplemental pension plan for some salaried retirees that is not insured by PBGC.
No. PBGC does not insure the Avaya Inc. Supplemental Plan because it is a nonqualified plan as defined in the tax code.
No. After filing for bankruptcy in January 2017, Avaya made part but not all of its statutorily required pension contributions to its two PBGC-insured pension plans. Avaya’s amended Plan of Reorganization, which was announced on October 25, 2017, addresses the unpaid pension contributions for both pension plans. Contributions for the Avaya Inc. Pension Plan will be caught up, if the plan of reorganization is approved, when Avaya emerges from of bankruptcy.
Avaya is seeking bankruptcy court and PBGC approval for a “distress termination” of the Avaya Inc. Pension Plan for Salaried Employees. A financially distressed employer can apply for a distress termination if the plan does not have enough money to pay all pension benefits owed to participants. In bankruptcy, the employer must prove to the bankruptcy court that it cannot reorganize and emerge from bankruptcy unless the pension plan is terminated. If the application is granted, PBGC takes over as trustee of the plan and pays plan benefits, up to the legal limits.
When a company applies for a distress termination of a pension plan, the plan administrator must notify affected parties in writing with what is known as a “notice of intent to terminate” at least 60 days before the proposed termination date. Avaya has certified to PBGC that each participant in the Avaya Inc. Pension Plan for Salaried Employees has been informed of Avaya’s intent to terminate that plan as of November 30, 2017.
If Avaya’s application to terminate the pension plan is approved by the bankruptcy court and PBGC, PBGC will provide information to you when we become trustee of your plan. Initially we will give you general information about the pension insurance program and our guarantees. We will be able to provide more specific information about your benefits after we have had an opportunity to review the plan's records, assets, benefit liabilities and your participation in the plan.
No. You cannot earn additional pension benefits under your plan after it terminates.
Note, for pension plans that terminate when your employer is in a bankruptcy, guaranteed benefits are determined at the earlier of the date your employer’s bankruptcy proceeding began (January 19, 2017, for Avaya) and the date the pension plan is terminated.
Yes. The Uniformed Services Employment and Reemployment Rights Act (USERRA) requires pension plans to recognize time in military service for a participant who leaves his or her job to serve in the uniformed services and, soon after leaving military service, is re-employed by the employer that sponsored the plan.
PBGC’s guarantees apply to plan benefits that are provided under USERRA, up to legal limits, even if the participant is reemployed after the plan termination date or bankruptcy filing. However, only service up to the plan’s termination date recognized by the plan can be considered for PBGC guarantee purposes.
Under the Single-Employer Insurance Program, PBGC guarantees the "basic benefits" you earned before your pension plan’s termination date (or the date your employer’s bankruptcy proceeding began, if earlier) up to legal limits. The types of benefits guaranteed include pension benefits paid at normal retirement age, most early retirement benefits, annuity benefits for survivors of plan participants, and disability benefits (except for disabilities that occur after the plan termination date or the employer’s bankruptcy filing date, whichever is earlier).
There are several legal limits on PBGC’s guarantee. For example, PBGC does not guarantee monthly pension amounts that are greater than the monthly benefit your plan would have provided if you had retired at your normal retirement age. Also, the maximum amount that PBGC can guarantee is set each year under provisions of federal pension law. The maximum monthly guarantee is adjusted based on the participant’s age, form of annuity benefit, and other factors. For more information, and a description of the other guarantee limitations, see PBGC Guaranteed Benefits.
PBGC’s maximum monthly guarantee is calculated as of the date on which Avaya filed for bankruptcy protection from its creditors, which was January 19, 2017. (See PBGC’s Maximum Monthly Guarantee Tables.)
To calculate the maximum monthly guarantee, use your age on the later of (a) Avaya’s bankruptcy filing date (January 19, 2017) and (b) the date on which you retired (or will retire, if you are not yet retired).
The maximum monthly guarantee tables show amounts at every whole age, but PBGC’s calculation is based on age in years and months, so it may differ slightly from what you see on the website.
When an underfunded pension plan is terminated, PBGC becomes responsible for paying plan benefits and takes over the pension plan’s remaining assets. PBGC reviews your plan's records to determine the benefits each person will receive. The amount we pay is subject to limits set by law.
If you are already receiving a pension, we will continue paying you without interruption during our review. These payments are an estimate of the benefits that PBGC can pay under the insurance program. We will continue to pay your benefits in the annuity form you chose at retirement.
If you have not yet retired, we will pay you an estimated benefit amount when you become eligible and apply to PBGC to begin payments. See also Does PBGC guarantee both the 50% and 100% survivor options offered under the Avaya Inc. Pension Plan for Salaried Employees?
Some pension plans offer their participants lump sum payments for the full value of their pensions, but PBGC generally does not. PBGC pays benefits in monthly payments for life. However, if the total value of your benefit payable by PBGC is $5,000 or less and you have not started receiving monthly payments, you can receive a lump sum from PBGC.
The attached table shows the maximum amounts PBGC can guarantee, payable as a straight life annuity, joint-and-50% survivor annuity, and joint-and-100% survivor annuity. (The first two are also available at PBGC’s Maximum Monthly Guarantee Tables).
The joint-and-50% survivor amounts shown on the website assume that both the retiree and beneficiary are the same age. PBGC will calculate the maximum monthly guarantee based on each retiree’s actual form of payment and the retiree’s and beneficiary’s ages.
Yes. For participants who retire before the plan terminates, PBGC guarantees benefits payable in the annuity forms provided by the plan, including joint-and-survivor annuities of various percentages, certain-and-continuous annuities of various lengths, etc.
Participants who retire after PBGC becomes trustee of the plan will choose a form of annuity from PBGC’s optional forms (described at Your PBGC Benefit Options) instead of the optional forms available in the past under the plan. PBGC offers a 100% survivor option to future retirees.
At this time, the Avaya Inc. Pension Plan for Salaried Employees is ongoing and under the responsibility of the company. Avaya’s motion seeking plan termination has not yet been considered by the bankruptcy court.
A preliminary analysis shows that most but not all people covered under the PBGC-covered, tax-qualified Avaya Inc. Pension Plan for Salaried Employees will receive their full accrued benefit. The plan has not yet been terminated, and PBGC has not received the plan records. Thus, we do not yet know how many participants will see reduced benefits due to the legal limits on PBGC’s guarantee.
A company seeking to terminate a pension plan in a distress termination is required to issue a "Notice of Intent to Terminate" to all plan participants at least 60 days but not more than 90 days before the proposed plan termination date. Beginning on the proposed plan termination date (November 30, 2017), the Avaya plan administrator is required to reduce retirees’ benefits to the estimated guaranteed benefit amounts payable by PBGC upon termination of the Avaya Inc. Pension Plan for Salaried Employees.
After the plan is terminated and PBGC becomes responsible for paying plan benefits, PBGC reviews your plan's records to determine the benefits each person will receive. The amount we pay is subject to limits set by law.
The two covered Avaya pension plans are insured under PBGC’s Single-Employer Insurance Program. The Single-Employer Program has a financial deficit because its current assets are less than the current value of future benefits owed to participants in failed plans. However, the financial condition of the Single-Employer Program has improved in recent years and is projected to improve over the coming years.
PBGC operates two separate insurance programs – one for single-employer plans and one for multiemployer plans. The two covered Avaya pension plans are insured under PBGC’s Single-Employer Insurance Program. The Single-Employer Program is not at risk of running out of money in the near term, and its finances are projected to improve over the coming years.
By law, the Single-Employer Insurance Program and Multiemployer Insurance program are financially separate. PBGC’s Multiemployer Program is in dire financial condition, but it does not apply to the Avaya pension plans.