WASHINGTON — PBGC officials want to return defunct defined benefit plans to companies that shed them during bankruptcy reorganization, posing a new threat to corporations that thought they had rid themselves of the costly benefits.
Agency officials expect to use previously untapped legislative authority to restore some plans to companies that are now in the position to finance them.
“If it turns out that a company in bankruptcy can later afford its plan, then it (the plan) should be restored,” Charles E.F. Millard, director of the Pension Benefit Guaranty Corp., Washington, said in an interview.
But pension attorneys think the agency will have a hard row to hoe.
“It will be a real uphill legal battle for the PBGC to prevail,” said Jeffrey B. Cohen, an ERISA attorney at Ivins, Phillips & Barker Chartered, Washington, and former PBGC chief counsel.
Hundreds of corporations file for Chapter 11 bankruptcy protection each year, and many emerge from the process after clearing their books of debts and turning responsibility for their pension plans over to the PBGC.
But under a recently launched PBGC initiative, some of those companies could be required to take their plans back if PBGC investigations reveal that the companies now are able to foot the bill.
The PBGC has always had the ability to restore plans to companies that have re-emerged from bankruptcy under a provision in the Employee Retirement Income Security Act .
The agency hasn't used its restoration authority since the PBGC's creation in 1974, partly, according to ERISA attorneys, because of concerns that it would conflict with bankruptcy court resolutions.
But Mr. Millard said he wants to use the agency's restoration authority to ensure that companies aren't taking advantage of the PBGC.
“Its (the initiative's) real purpose is to make sure that the playing field is fair, and to make sure that nobody is able to use PBGC to offload liabilities in a way that would be unfair to the remaining premium payers,” Mr. Millard said.