As the W$J reports here, with the PBGC on track to becoming one of the largest shareholders in several of this country’s basic industries, there’s not a lot of joy these days in the Pre-Termination Processing Division (PTPD) at the Pension Benefit Guaranty Corporation (PBGC). According to this article, the PBGC owns about 7% of US Air, and is expected to own between 15% and 35% of UAL upon emergence from chapter 11. Regarding the PBGC’s mounting exposure to pension plans terminated in bankruptcy, the WSJ reports:

PBGC’s assumption of corporate pensions is resulting in a sharply widening deficit. At the end of 2004, the PBGC had $62.3 billion in obligations and $39 billion in assets — a gap of $23.3 billion. The deficit could swell if the Chapter 11 filings of Delta, Northwest and Delphi lead them to offload unfunded pension liabilities on the agency. The Congressional Budget Office estimates that the shortfall will widen to $86.7 billion by 2015….
The shares in the reorganized [US Air] that were awarded by the court to the PBGC amount to compensation for the $2.3 billion in unfunded pension liabilities it took over….
If Northwest and Delta shed their pension plans, it could saddle the PBGC with an estimated $11.2 billion in new unfunded liabilities.
Moreover, the PBGC estimates that Delphi, the largest U.S. auto-parts supplier in terms of sales, has an unfunded pension liability of $10.8 billion — and that the agency itself would be on the hook for $4.1 billion.

In related news from the UAL bankruptcy proceedings, Pension Benefit Guaranty Corp. v. United Air Lines, Inc., (Bankr. N.D. Ill., 10/26/05), the Bankruptcy Court ruled on the PBGC’s motion for an order of the Court terminating the UAL Pilot Defined Benefit Plan (the “Pilot Plan”) and establishing 12/30/04 as the plan termination date. According to the PBGC, if the Pilot Plan continued just six more months, the PBGC’s liability upon termination would rise by as much as $138 million (an amount disputed by UAL and the Pilots Union). The Bankruptcy Court for the Northern District of Illinois, however, denied the PBGC’s motion for summary judgment, stating:

The initial — and dispositive — issue raised by the present summary judgment motion is whether under 29 U.S.C. § 1342(c) a court may issue a decree terminating a pension plan if parties opposing termination fail to establish the PBGC acted arbitrarily in seeking termination, or whether PBGC must affirmatively establish grounds for termination. If PBGC must prove its case, summary judgment could not be granted, because the grounds for plan termination here are in dispute….
[S]ummary judgment must be denied because § 1342(c) requires a judicial determination that the Pilot Plan must be terminated — a question on which PBGC bears the burden of proof — not simply judicial review of the reasonableness of PBGC’s decision to seek termination….

In outlining what the PBGC would have to prove at trial in order to satisfy its burden of proof, the Court stated:

In the absence of an agreement with the plan administrator, PBGC must prove at trial, by a preponderance of the evidence, that the Pilot Plan must be terminated “in order to protect the interests of the participants or to avoid any unreasonable deterioration of the financial condition of the plan or to avoid any unreasonable increase in the liability of the fund.” 11 U.S.C. § 1342(c). However, if PBGC satisfies this burden of proof and the Pilot Plan is terminated, the December 30 termination date suggested by PBGC will be effective….

This case is especially interesting in that the Court’s opinion is styled an “Amended Memorandum of Decision on Motion for Summary Judgment.” This amended opinion, however, doesn’t merely correct some typos, but completely reverses the Court’s original opinion, in which the Court granted the PBGC’s summary judgment motion and fixed the termination date of the Pilot Plan at 12/30/04. In this earlier draft, the Court stated that summary judgment was appropriate because the PBGC “established by a preponderance of the evidence that termination was necessary to avoid an unreasonable increase in liability.” I guess a little R&R for Judge Wedoff at the NCBJ sure helped sort things out in his mind.
Still, it looks downhill for the PBGC, retirees, and us taxpayers from here as the big squeeze continues.
With so little to be joyful about at the PBGC, maybe it should try to lure the PTPD’s former head, Bob Joy, out of retirement. The way things are going there, however, I think even he’d agree that there’s not enough money in the world to make that happen. Happy trails, Bob!
Steve Jakubowski
© Steve Jakubowski 2005