In a new question-and-answer guide about Chrysler’s pension plans, the federal Pension Benefit Guaranty Corp. notes that a bankruptcy filing can result in a reduction of benefits if plans are later taken over by the PBGC.
For example, under law, the PBGC does not guarantee benefits earned after a bankruptcy filing. The PBGC provides in its guide an example of a company that filed for bankruptcy on July 1, 2009.
Two years later, the PBGC took over the company’s pension plans. In that example, the PBGC would not guarantee benefits earned after July 1, 2009.
In addition, in such a situation, the maximum benefit the PBGC would guarantee to a plan participant would be linked to the amount set for 2009, not the maximum limit that would apply for plans terminating in 2011.
Auburn Hills, Michigan-based Chrysler sponsors 10 pension plans that are covered by the PBGC insurance program. Chrysler’s pension plans, as of November 30, 2008, had about $9.3 billion in unfunded benefits, according to the PBGC, of which about $2 billion would be guaranteed by the PBGC if the plans are terminated.
The carmaker’s plans have about 255,000 participants.
If the plans are terminated, it would be the PBGC’s fourth- or fifth-biggest loss, depending on the current value of the plans’ assets and liabilities, and the largest termination in terms of the number of plan participants affected.
The PBGC’s biggest plan takeover, in terms of loss to the agency’s insurance program and number of participants in the plans, was the 2005 termination of United Airlines’ four pension plans. The plans had about 122,000 participants and $7.5 billion in unfunded PBGC guaranteed benefits.
Chrysler has not filed a notice with the PBGC that it intends to terminate the plans.