distress termination issues

[AndyH]

We're being asked some difficult "what if" questions about a probable distress termination situation. I've never personally been involved in one, yet. Looking for some general information.

Let's say a plan is 90% funded, enough to cover guaranteed benefits, but not all accrued benefits. For example, EGTRRA increases would not be guaranteed.

Would the PBGC pay benefits to the extent funded, or would people be cut back to guaranteed benefit levels?

Anybody know how the PBGC converts assets to benefits, i.e. determines what benefit levels would be paid (above guaranteed limits) based upon available funds? Do they, for example, use certain annuity rate tables?

The situation, which may not seem to make sense but does, is that there may be some additional funds available to make 90% funded 95%, but the parties want to know how the participants would be affected before agreeing to release the funds. (And I know that is not normally an option-this is a unique situation).

Can anybody shed light on this process?

[david rigby]

I'm no expert, going thru my first Distress Termination now also. I think the PBGC pays benefits. The "extent funded" provides a measure of how much the PBGC can go after. (If the PBGC paid only "to the extent funded", there would be no need for the PBGC. But then some believe that is always the case.)

The PBGC limits what it pays two ways: first, the dollar maximum, then the phase-in of plan amendments. Well, perhaps that should be reversed, but you get the idea. Oh there is another limitation: the "3-year lookback" in Priority Category 3.

I'm not sure what you mean about "the parties want to know how the participants would be affected before agreeing to release the funds". I doubt you can have a DT without prominent use of the word "bankruptcy", in which case, the judge likely has a voice (to put it mildly).