PBGC management hopes to take greater advantage of a little-used tool for restructuring multiemployer pension plans, as the number of candidates likely to seek the agency's help grows.
Known as partitioning, the process allows multiemployer plans to isolate a group of participants from a troubled employer and have the Pension Benefit Guaranty Corp. provide financial assistance to them, while protecting the benefits of the remaining participants.
Agency officials also hope the process will lead to more mergers among multiemployer plans by making merger candidates healthier and more attractive. Having more plans consolidate could also reduce the number seeking PBGC assistance.
“It could be a very important part of how we manage the multiemployer wave of insolvencies that is coming,” said Sanford Rich, the PBGC's chief of negotiations and restructuring in Washington.
At the top of the list of insolvent multiemployer plans are those involving Hostess Brands Inc., Irving, Texas, the company that made the Twinkie famous. Hostess, which liquidated in 2012 and sold its snack cake business to Apollo Global Management and Metropoulos & Co. in 2013, had already suspended payments to its 42 multiemployer plans in 2011.
Dusting off a tactic last used in 2010, the PBGC announced Jan. 31 the partition of Hostess participants from the $23.3 million Bakery and Sales Drivers Local 33 Industry Pension Fund, Baltimore. The plan's funding level had plummeted to 50%, largely due to Hostess suspending contributions.
The agency also coordinated the merger of the now-healthier and, thanks to partition, fully funded Local 33 pension fund with the Milk Drivers and Dairy Employees Local Union 246 of Washington D.C. Pension Fund, Landover, Md. In 2012, that plan had $64.2 million in assets and was 101% funded.
Both pension funds cover members of the International Brotherhood of Teamsters, some of whom worked for Hostess.