Pensions and Benefits Committee

ABI Committee News

Pensions and Benefits in Bankruptcy: The Pension Protection Act of 2006 and Other Recent Developments in the Law

Last year saw a number of developments in pension and benefits law, particularly affecting parties in bankruptcy proceedings. In response to concerns over the termination of traditional defined benefit pension plans and the persistent large deficit of the Pension Benefit Guaranty Corp., Congress enacted the Pension Protection Act of 2006 (PPA). PPA replaced the prior regulatory regime for determining minimum funding contribution levels with a new set of rules designed to eliminate loopholes and keep plans better funded over time. Actuaries now have less flexibility in the assumptions they may use to determine funding requirements. Plans  deemed to be “at-risk”  must meet even stricter funding requirements. Plans that are less than 60 percent funded must freeze future benefit accruals until the plan sponsor makes contributions sufficient to satisfy the 60 percent threshold.  Commercial airlines that freeze future benefit accruals are exempt from the new rules and permitted to pay down their pension debt over a period more than twice as long as other plan sponsors. PPA brought about a number of other changes, as well. In addition to the PPA, there were developments under Bankruptcy Code §1113, in controlled group liability under Title IV of ERISA, in the way KERPs are treated under Bankruptcy Code §503(c) and in other areas.

Read the full article. (Materials from the 2006 Winter Leadership Conferece)

Understanding a Pension Planís Lien for Missed Minimum Funding Contributions

When the sponsor of a pension plan fails to make required contributions to the plan, and the aggregate unpaid balance of all current and past-due contributions exceeds $1 million, a lien arises under the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA) in favor of the plan against all of the assets of the plan’s sponsor and the members of the sponsor’s controlled group. IRC §412(n)(1); ERISA §302(f)(1), 29 U.S.C. §1082(f)(1). The lien may be perfected and enforced only by the Pension Benefit Guaranty Corp. (PBGC) or at the direction of the PBGC. See IRC §412(n)(5); ERISA §302(f)(5), 29 U.S.C. §1082(f)(5).

Read the full article.

Third Circuit Sets Standard for Applying Distress Termination Test to Multiple Plans

A recent decision by the U.S. Court of Appeals for the Third Circuit sets forth a new standard for applying the Employee Retirement Income Security Act of 1974’s (ERISA’s) distress termination test when a bankrupt entity seeks to terminate two or more of its defined benefit plans. In re Kaiser Aluminum Corp., 456 F.3d 328 (3d Cir. 2006). In that case, the appeals court held that a bankruptcy court should apply the distress test to all of the debtor’s plans in the aggregate rather than to each plan individually, contrary to the position taken by the Pension Benefit Guaranty Corp. (PBGC). While courts in the past have applied the distress termination test both to plans in the aggregate (when the debtor seeks to terminate more than one plan) and to plans individually (when the debtor seeks to terminate only one of its plans), there are no decisions prior to the Kaiser case expressly considering how to apply the test.

Read the full article.

Agenda for the 2007 Annual Spring Meeting

"What hath PPA wrought? The impact of the Pension Protection Act of 2006 on troubled and bankrupt companies."

PPA 2006 increases required pension contributions for most companies, expands reporting and disclosure obligations, and imposes benefit restrictions on pension plans that are not well-funded. Our panel will discuss the financial and legal effect of these new requirements, and the impact they are having on the dynamics of bankruptcies involving underfunded pension plans.

Moderator: Carol Connor Flowe (Arent Fox PLLC; Washington, DC), James Feltman (Mesirow Financial Consulting, LLC; Miami), David Seligman (Kirkland & Ellis LLP; Chicago) and Charles Finke (Associate Chief Counsel of the PBGC) .