Statement of Executive Director Steven A. Kandarian on court ruling in dispute between PBGC and US Airways
Judge Stephen S. Mitchell of the U.S. Bankruptcy Court for the Eastern District of Virginia issued a ruling yesterday in a case concerning the proper size of PBGC's claim against US Airways for underfunding in the pilots' pension plan, which the company terminated and transferred to the agency earlier this year. The court rejected US Airways' challenge to PBGC's claim. PBGC Executive Director Steven A. Kandarian issued the following statement:
| "This ruling is a victory for
the financial integrity of the federal pension insurance
system. It upholds the commonsense view that it should
not be cheaper to terminate a pension plan with the PBGC
than with a private insurance company. The proper
measure of PBGC's claim against the sponsor of an
underfunded pension plan is the cost of buying annuities
in the private marketplace. As Judge Mitchell's opinion
makes clear, companies cannot use non-market assumptions
to artificially slash pension underfunding and escape
the true cost of their obligations. "This ruling also affirms that PBGC's claim against sponsors who terminate their pension plans is governed by the Employee Retirement Income Security Act, not bankruptcy law. As an unsecured creditor, PBGC can only hope to recover pennies on the dollar for a plan's unfunded benefit liabilities, but those pennies add up. In the case of US Airways, PBGC's recoveries will be based on its filed claim of $2.1 billion, not the $890 million the company asserted. This is all the more important because the PBGC shares bankruptcy recoveries with participants in terminated plans, many of whom have already lost benefits as a result of the termination." |
PBGC is a federal corporation created under ERISA. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in about 32,500 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and investment returns.
PBGC No. 04-17