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PBGC to try mediation with plan sponsors on termination liability, early warning programs

Pension Benefit Guaranty Corp. officials introduced Monday a new mediation approach to dealing with plan sponsors involved in the agency's termination liability and early warning programs.

"I am doing whatever I can to make it easier for plan sponsors to maintain plans," PBGC Director Tom Reeder said on a press call.

PBGC officials are also hoping that the one-year mediation pilot program, which uses independent federal mediators, will save time and money for the government as well as plan sponsors.

The American Benefits Council, which has been critical of the agency's early warning program in particular, called the pilot program "an excellent signal that PBGC is listening to plan sponsors and being creative to improve its programs and its relationships with sponsors for addressing issues raised by companies that sponsor pension plans," Lynn Dudley, senior vice president, global retirement and compensation policy, said in a statement.

The PBGC chose termination liability collections cases and early warning program matters for the pilot project as those likely to reap the greatest benefit from mediation. The early warning program averages 100 cases per year, of which 15 or 20 might be eligible, said Karen Morris, PBGC chief of negotiations and restructuring, on the press call. The PBGC handles about 75 termination liability cases with underfunded plans each year. Not all cases will be eligible for the mediation approach.

Cases not eligible include sponsors with insufficient money or time to make changes or those unwilling to executive a stand-still agreement, and cases already in the courts. The program is entirely voluntary.

PBGC General Counsel Judith Starr said on the call that "termination cases are about money. Disputes tend to be what is an affordable amount." While the agency does not litigate that much, "it does take a long time and that can be frustrating for us and the plan sponsors. Maybe this will take out some of the noise from the process," Ms. Starr said.

"We do not want to put the company out of business," Ms. Morris added.

PBGC officials are now looking for suitable candidates for the pilot project, which agency officials hope will also improve relations with plan sponsors. "Part of the purpose of mediation is to have the other side heard," Ms. Morris said.

In March, the early warning program led to an agreement with Sears Holdings Corp. for the company to provide additional funding and security for two pension plans in connection with the sale of Sears' Craftsman brand to Stanley Black & Decker. The deal called for a $250 million payment to the plans three years after the deal closing, and a 15-year income stream from product sales. Sears also provided PBGC a lien on $100 million of real estate assets.