Human Capital & Careers

PBGC Moves to Rescue Lehman Pensions

By terminating the pension plan, the agency ensures that Lehman's soon-to-be-sold subsidiaries will remain responsible for its unfunded liabilities.
Stephen TaubDecember 12, 2008

The Pension Benefit Guaranty Corp. has acted to save Lehman Brothers’ pension plan — by terminating it.

The termination, which takes effect today if approved by the U.S. District Court in Manhattan, comes ahead of a December 22 bankruptcy court hearing on the sale of Lehman’s investment-management subsidiaries. If the pension plan is terminated before those units are sold, they will remain liable for the unfunded benefit liabilities.

More than 26,000 workers and retirees belong to the plan. The PBGC estimates it is 95 percent funded, with $898.2 million in assets to cover $940.8 million in benefit liabilities. If the plan ends, the agency expects to be responsible for $17.9 million of the $42.6 million shortfall.

Under the Employee Retirement Income Security Act of 1974, the federal legislation that created the PBGC, the agency can collect claims from members of a plan sponsor’s controlled group, such as Lehman’s investment-management subsidiaries. A company “controls” an entity when it owns at least 80 percent of it, directly or indirectly.

The PBGC says the Lehman plan stands to be abandoned following the liquidation of substantially all the firm’s assets, as none of the buyers has assumed responsibility for the plan. Any subsidiary that exits the control group while the plan still exists will escape liability for it.

The agency says it believes Lehman’s nonbankrupt controlled group members could afford to take care of the pension plan. Should that fail to happen, the PBGC says it will take over the assets and use insurance funds to pay guaranteed benefits earned under the plan.

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