Webcast: Pension Tension: The Treatment of Underfunded Pensions In and Out of Bankruptcy

April 30, 2015

​For many troubled companies, defined benefit pension plan liabilities are unaffordable. The single-employer plan fund of the Pension Benefit Guaranty Corporation (PBGC), which provides guaranteed benefits to participants in terminated plans, has a deficit in excess of $27 billion, and U.S. private-sector pension plans are cumulatively underfunded by hundreds of billions of dollars.

Pension plan sponsors that cannot afford required contributions have limited options outside of bankruptcy. The Internal Revenue Service is permitted to grant funding “waivers” that spread a year’s contributions over the next five years, but the legal standard is difficult to satisfy and there are few other options to address accrued liabilities. Future benefit accruals can be “frozen” to limit increases in liabilities, but most troubled companies have already done so.

In bankruptcy, it may be possible to effect a “distress” termination if the plan sponsor can demonstrate that the plan is unaffordable. In that event, the PBGC assumes all plan liabilities. However, doing so typically gives the PBGC a claim that may dwarf those of other unsecured creditors, as well as a $3,750 per participant “termination premium” that is payable in full over the three years following a reorganized company’s emergence from bankruptcy. Companies in bankruptcy thus turn to asset sales under Section 363 of the Bankruptcy Code as a way to maximize value by transferring assets free and clear of pension claims.

In this presentation, we will address the challenges faced by troubled companies with underfunded pension plans and ways to address this critical issue – both in and outside of a bankruptcy process. Please join us for an informative presentation.

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Michael Collins – Mr. Collins is a partner in the Washington, DC office of Gibson Dunn. He is Co-Chair of the Executive Compensation and Employee Benefits Practice Group. His practice runs the full gamut of tax, ERISA, accounting, corporate, and securities law aspects of stock option, SAR, restricted stock, and employee stock purchase plans; tax-qualified retirement plans, nonqualified deferred compensation; SERPs; executive employment agreements, golden parachutes and other change in control arrangements; severance, confidentiality, and noncompete contracts; performance bonus and incentive plans; director’s pay; rabbi trusts; split dollar life insurance; excess benefit and top hat plans; and the like. He represents both executives and companies in drafting and negotiating employment arrangements. Mr. Collins has been ranked by Chambers & Partners USA 2014 as a leading lawyer in the area of Employee Benefits and Executive Compensation in the District of Columbia. He is also listed in 2015 edition of The Best Lawyers in America® under the category of Employee Benefits (ERISA) Law.

Robert Klyman – Mr. Klyman is a partner in the Los Angeles office of Gibson Dunn and a member of the Business Restructuring and Reorganization Practice Group. He represents debtors, acquirers, lenders and boards of directors. His experience includes advising debtors in connection with traditional, prepackaged and “pre-negotiated” bankruptcies; representing lenders and other creditors in complex workouts; counseling strategic and financial players who acquire debt or provide financing as a path to take control of companies in bankruptcy; structuring and implementing numerous asset sales through Section 363 of the Bankruptcy Code; and litigating complex bankruptcy and commercial matters arising in chapter 11 cases, both at trial and on appeal. Mr. Klyman has been widely and regularly recognized for his debtor and lender work as a leading bankruptcy and restructuring attorney by Chambers USA; named as one of the world’s leading Insolvency and Restructuring Lawyers by Euromoney; listed in the K&A Restructuring Register, a leading peer review listing, as one of the top 100 restructuring professionals in the United States; and named as a “Top Bankruptcy M&A Lawyer” by The Deal’s Bankruptcy Insider.