Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. REGULATION AND LEGISLATION
February 03, 2014 12:00 AM

PBGC eyes little-used tool for plan insolvencies

Partitioning isolates hardest-hit participants so remainder can thrive

Hazel Bradford
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    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.


    Benefits guaranteed

    Teamsters General Counsel Brad Raymond said in a statement that while the union would prefer not to have the Hostess participants' benefits cut by an average of 17% to get to PBGC levels, “at least these benefits will now be guaranteed and PBGC's actions will ensure that the fund will not run out of money.”

    Another multiemployer pension fund with Hostess participants already has applied for partition relief, and more are expected, Mr. Rich said.

    “Overall, we think what PBGC is doing offers the best chance for struggling pension funds to survive in the context of inadequate bankruptcy laws, which permit companies to abandon their responsibilities and shift their pension commitments to PBGC, other responsible employers and their workers,” Mr. Raymond said in a statement.

    The last time PBGC officials tried partitioning was in 2010, for the Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund. After 52 contributing employers went bankrupt or out of business, the plan administrator applied for partition. The plan, once expected to be insolvent within three years, stayed solvent with 57 contributing employers and full benefits for workers. Some 1,500 people from the bankrupt firms went into a new plan with benefits paid by the PBGC and capped at $12,870 a year for 30 years of service.

    Plan supervisor Linda Femmer said the move, along with recent investment gains, has kept the plan solvent.

    For now, the PBGC's own financial woes prevent it from more aggressively using partitioning.

    In its most recent annual report as of Sept. 30, the agency's multiemployer program deficit increased to $8.3 billion from $5.3 billion the year before, and up from $2.8 billion in fiscal 2011.

    But faced with the prospect of more multiemployer plan insolvencies, PBGC officials say they cannot just sit and wait for more plans to land on their doorstep.

    Successful use of the partition tool could also help PBGC officials make their case to Congress to let the agency raise its multiemployer premiums; they hope to overcome a political roadblock by showing the efficacy of partitioning.

    “If we had more resources, we could do this more broadly to help struggling multiemployer plans,” Mr. Rich said.

    Multiemployer plan advocates like the idea of the PBGC playing a more active role earlier in sorting out plans with a troubled cohort, like the Hostess groups, although they would like to see safeguards over who gets put in that category, and how the sacrifices are shared among participants.

    "It can work'

    Even with large multiemployer plans, which under current law are required to keep spending money until it is gone, “partition could help,” said one multiemployer expert who declined to be identified. “PBGC said they can get those plans back on track. I think it can work for any plan. There's always some threshold that could make it work.”

    More cash to spend on portioning troubled plans would also help PBGC officials pursue the related goal of encouraging more mergers, by getting merger candidates in better shape through partitioning. Mergers are particularly helpful for multiemployer plans in that they reduce administrative costs and increase assets, which also allows for more sophisticated asset allocation strategies, experts say.

    PBGC officials are also hoping that this latest example will convince members of Congress to give them more legal leeway to do more partitions. Currently, the Employee Retirement Income Security Act criteria for partition include having a significant number of contributing employers that filed for bankruptcy, the likelihood of insolvency in the near future and the potential to reduce risk of plan insolvency. Another criterion is whether contributions would have to be dramatically increased.

    Being able to meet all those criteria in the Local 33 case “is why Hostess pops out,” Mr. Rich said. “It gives us the authority to partition liabilities for which there is no contributing entity.”

    PBGC officials are now devoting more time and resources to identifying candidates for partition, and to let multiemployer plan trustees and administrators understand the options available to them. In cases where the pension funds are not interested in asking for partition, the PBGC can step in and ask a court to order it, but it is a time-consuming process. n

    Related Articles
    PBGC multiemployer pension plan reports raise alarms on underfunding
    Distressed multiemployer plans show progress, but 'substantial percentage' stil…
    PBGC to take over Constar pension fund in sale
    PBGC to begin custody search
    Execs eagerly awaiting guidance from PBGC on liability issue
    Recommended for You
    Standards-of-conduct rules approved along party lines
    Standards-of-conduct rules approved along party lines
    Investors hail SEC guidelines on exchanges
    Investors hail SEC guidelines on exchanges
    Senate confirms new CFTC chairman
    Senate confirms new CFTC chairman
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    Morningstar Indexes' Annual ESG Risk/Return Analysis
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing