WASHINGTON - The PBGC could have a hard time terminating New Valley Corp.'s pension fund, now that the company intends to make a one-time, $211.6 million pension contribution, New Valley said in its bankruptcy reorganization statement.
In addition, the statement said a plan termination could stop the deal for First Financial Management Corp. to acquire New Valley's Western Union Financial Services Inc., which accounts for almost 90% of New Valley's business.
The Pension Benefit Guaranty Corp. does not support New Valley's plan, and has said it would "do what is necessary," including possibly terminating the plan, to protect pensions.
Countered a spokesman for New Valley: "If we put $211.6 million in (the pension plan) on a one-time payment, and if the performance continues to be even 10% ... then on an on-going basis, we would not have to put another dollar into the fund."
First Financial of Atlanta won the bid, from a field of four bidders. The company's $1.193 billion bid did not include any provision for New Valley's pension plan, which the PBGC estimates has a $420 million unfunded liability.
If the PBGC did terminate the plan, both New Valley and First Financial would be liable for the pension plan because of laws governing plans in a control group.
The PBGC is studying whether it should terminate the pension plan before New Valley and First Financial close the deal in U.S. Bankruptcy Court on Nov. 1.
"Under the current proposal, the pension plan will not have adequate financial backing even with the contribution of more than $200 million," a PBGC spokeswoman said.
The New Valley spokesman said the company does not intend to terminate the plan.
New Valley filed its reorganization plan - which included provisions for the pension plan - in U.S. Bankruptcy Court for the District of New Jersey in September. The Upper Saddle River, N.J., financial services company has been in bankruptcy proceedings since November 1991.
In order to terminate a plan, the PBGC needs to show a plan sponsor has not met the 1974 Employee Retirement Income Security Act's minimum funding requirements or that the long-term viability of the fund is at a significant risk.
While some sources agreed the PBGC has reason to believe there is a risk involved, others did not.
According to the proposal filed in U.S. Bankruptcy Court, New Valley said it has met the minimum funding requirements for the past five years; last year it contributed $24.7 million. The company added it did not believe the PBGC would be successful in trying to terminate the plan. It also said it is negotiating with the PBGC to resolve disputes between New Valley and the PBGC.
Under the reorganization plan, after the sale of Western Union to First Financial, New Valley would continue to make its annual contribution to the pension plan. If pending legislation is enacted to speed up funding requirements for underfunded plans, New Valley said higher contributions could be required in the future.
With the $1.193 billion in cash, some sources said New Valley would have enough money to pay off its creditors, pay off its unfunded liability and still have $383.5 million in net assets.
While New Valley does not currently know how it would use those assets, the money could be used for general corporate purposes, including investments, acquisitions, joint ventures and other business opportunities, the reorganization plan said.
Others said it is unclear whether New Valley would re-invest the cash. The only New Valley business that would remain after the sale would be its messaging service, which generated $50 million in revenue last year.