PBGC Revives Partition Authority

For the third time in its history, the Pension Benefit Guaranty Corporation (PBGC) is using its authority to partition an insolvent employer’s participants from a multiemployer plan to boost the plan’s financial position.

The agency announced the Bakery and Sales Drivers Local 33 Industry Pension Fund in Baltimore was slated to go insolvent following the bankruptcy filing of Hostess Brands, Inc. PBGC approved a request from the Bakery and Sales Drivers to separate 330 former Hostess participants from the plan, and pay PBGC guaranteed benefits so promised benefits for most of the plan’s members would remain intact.

During a press briefing, PBGC Director Joshua Gotbaum explained plans in this critical status have for years come to the agency saying they have adequate resources to pay for active employees, but do not have enough resources to pay for employees of companies that went out of business. The agency has the authority to take responsibility for those companies that have gone out of business, called partition ability, but until now has only used this authority twice—not because the agency does not want to help, but because its multiemployer program does not have adequate funds to do so. “So we have to tell these plans our program has a deficit, so can’t help,” he said.

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However, according to Gotbaum, the agency has decided, even though it is clear it needs more resources, it will use its authority to help these plans. “We decided to do our job, despite the lack of money,” he added.

Speaking about the current negotiation to separate Hostess participants from the Bakery and Sales Drivers Local 33 Industry Pension Fund, Gotbaum said: “If we had adequate funds we could do this not just for plans with hundreds of participants, but for plans with hundreds of thousands of participants.”

A Cry for Help

In January 2012, Hostess Brands Inc. filed bankruptcy protection after failing to reach an agreement on pension and health benefits (see “Hostess Proposes Suspension of DB and MEPP Contributions”).  The Bakery and Sales Drivers Local 33 Industry Pension Fund had six contributors to the plan originally, but following other withdrawals and the Hostess bankruptcy it had one remaining contributor able to pay for its own employees, Sanford Rich, PBGC's chief of negotiations and restructuring explained during the press briefing. After determining the plan satisfied all requirements of the statute giving the PBGC partition ability, the agency took Hostess participants out the plan and put them into a new terminated plan. The current plan without these participants is solvent and expected to be solvent in perpetuity, Rich said.

However, since the plan had only one contributor left, the agency suggested the employer join another plan. The plan found another Teamster plan, the Milk Drivers and Dairy Employees Local Union No. 246 of Washington D.C. Pension Fund, and the two, along with the PBGC, negotiated a merger. The merged plan now has three contributors and about 1,100 participants, including the Hostess participants. Separating Hostess participants from the rest of the plan will enable the plan to avoid insolvency and preserve pension benefits for most of the plan's participants, the agency announced. “Merging the plans added multiple employer contributions, the strength of the multiemployer system, and lowered administrative costs,” Rich told the press.

Groups of Hostess participants exist in other multiemployer plans, but Gotbaum and Rich noted some of those plans are still financially sound despite the Hostess bankruptcy. There is one other outstanding request regarding a plan with a group of Hostess participants the agency is considering. In 2010, the agency took responsibility for pensions of Hostess employees from the American Bakers Assn. Retirement Plan, a multiple employer plan.

The last time the PBGC used its partition ability was in 2010, when it divided the Chicago Truck Drivers, Helpers & Warehouse Workers Union (Independent) Pension Fund into two separate plans (see“PBGC Divides Pension Plan to Delay Solvency”). The other time was in 1983.

According to Gotbaum, aside from more financial resources, the agency could help more plans if the statute for partition ability was amended. There are three hurdles to meet to be partitioned—one is the liability must be related to an actual bankruptcy. The PBGC can only use its authority if an employer withdrew from the plan because it filed Chapter 11 bankruptcy. “If Congress could redefine that into a broader category, we could use our partition authority more effectively,” he said. “If an employer withdraws because it liquidated, we can’t help. If it withdrew due to a geography change, we can’t help.”

In FY 2013, PBGC paid $89 million in financial assistance to 44 multiemployer pension plans covering the benefits of nearly 50,000 retirees. An additional 21,000 people in these plans will receive benefits when they retire. However, PBGC's multiemployer program premiums are far below the levels necessary to meet all obligations and the agency reported a net multiemployer deficit for FY2013 of $8 billion (see “PBGC Deficit Grows to $36B”).