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Guest pauline

Agreement with PBGC to Appoint PBGC as Trustee

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Guest pauline

An underfunded defined benefit plan is sponsored by a company that is in Chapter 11 bankruptcy proceedings. The PBGC is proceeding to have the plan terminated and to have the PBGC appointed as trustee. The PBGC has requested the bankrupt employer to sign an agreement to the termination of the plan and to the appointment of the PBGC as trustee. This agreement was drafted by the PBGC.

The company agrees that the plan should be terminated. However, the company would like to negotiate the scope of its responsibility and liability with respect to the plan after the PBGC has been appointed as trustee. Does anyone have any experience they can share about negotiating with the PBGC with respect to the terms of such an agreement? What are the issues we should be concerned about? Thanks for your responses.

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Guest Keith N

I had a client in a similar situation about 6 years ago. I was very surprised by the PBGC. They were extrapolating liabilities from Schedule B's that were 3 years old instead of using the liabilities reported to them on a recent Form 1, Sch. A. They were very accommodating, but had very limited resourses. They were very willing to negotiate a settlement.

I would ask the actuary for the basis of their liability calculations, then work from there.

Another major point is the PBGC's priority amongst the creditors. They will try to say that they should be paid 100 cents on the dollar, but I think the courts have been treating them as any other creditor. I haven't followed it recently, but it's definitely a point to watch.

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I believe that the PBGC has the right to take over the plan and can go to court to get it if you don't make the agreement (assuming you've stopped making required payments).

So far as the terms of the agreement - I would think they would be consistent with ERISA rules that apply in this situation - in other words, they would simply reiterate the responsibilities of the employer under ERISA; I would review those rules to be sure that this is the case.

So far as the numbers - it's probably too early to begin negotiating the amounts - the PBGC will want to get all of your data and will probably want to work with your actuary. At some point you would be getting a bill from the PBGC and that is the point to begin negotiating.

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