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New PBGC Rules Deny Benefit Guarantees After Employer Seeks Bankruptcy

June 15, 2011
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Related Topics: Finance/Taxes, Benefit Design and Communication, Retirement/Pensions, Latest News
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Final rules adopted by the Pension Benefit Guaranty Corp. will deny PBGC guarantees for benefits earned after an employer files for bankruptcy and before the agency takes over the plan.

Under the rules, published in the June 14 Federal Register, a participant’s guaranteed benefit would be based on service and compensation, if applicable, as of the date the plan sponsor filed for bankruptcy.

The rules implement provisions in the Pension Protection Act of 2006 that are designed to reduce the agency’s exposure to losses.

As a result, if an employer filed for bankruptcy and continued its plan after bankruptcy, with the PBGC later taking over the plan, benefits earned by participants while the employer was in bankruptcy would not be guaranteed by the agency. PBGC benefit guarantees would be tied to the date of the bankruptcy filing, not the date of plan termination.

Additionally, only benefits that are non-forfeitable as of the bankruptcy filing date would be guaranteed. For example, early retirement subsidies to which a plan participant became entitled after a bankruptcy filing date would not be guaranteed.

In fiscal 2010, the PBGC reported a near-record $23 billion deficit, up from a $22 billion deficit in fiscal 2009.   

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

 

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