PBGC claim against MTIA assets

[drakecohen]

The PBGC recently filed a bankruptcy claim for $937 million against a plan sponsor who went bankrupt last March but where the Defined Benefit Plan they sponsored had an AFTAP OF 115% in 2015 ($911 million in assets and $789 in liabilities).

In looking over the 5500 all the assets are reported as being in a Master Trust Investment Account. Could an MTIA really be worthless in a bankruptcy? Or could this be the PBGC filing a routine claim to protect themselves?

2015 5500 and PBGC claim letter attached

Westinghouse - pbgc claim-1.pdf

westinghouse-5500.pdf

[My 2 cents]

It would be my expectation that the PBGC does not base its claims on the value of benefits as measured for minimum funding purposes (especially when measured using the funding relief discount rates).  The funding relief rates have generally been in the 5% to 6% range (the three segment rates in 2015, which would have been used to measure the AFTAP, were 4.72% for the portions of the projected cash flow from the first 5 years, 6.11% for the portions from years 5 to 20, and 6.81% for years after 20) while the PBGC rates under Section 4044 call for discount rates in the 2% to 3% range (depending on duration).  This can clearly produce much higher benefit liabilities.

I would expect the value of the MTIA to be completely independent of the financial condition of the plan sponsor.

I would also expect the PBGC to use a conservative basis in deciding whether and how much to claim from the bankruptcy estate.  Bankruptcies do not escape them - they make it their business to become aware, almost immediately, of all bankruptcy filings.  Did I see that they were removing bankruptcy filings from their list of reportable events? 

[david rigby]

Strictly answering the questions posed in the original post: Yes and Yes.

However, the assets in the plan's trust are owned by the plan, not by the plan sponsor, so corporate bankruptcy should not mean the plan assets are impaired.