Risk & Compliance

Enron ”On the Hook” for Pension Losses

Proceeds from the $2.3 billion sale of Portland General Electric will be held in safekeeping until Enron's underfunded pension liabilities are sett...
Lisa YoonFebruary 10, 2004

Failed energy giant Enron Corp. agreed to put the proceeds of its $2.3 billion sale of Portland General Electric into an interest-bearing account to cover its share of pension losses, according to a report in the Portland (Oregon) Tribune.

The agreement came last Wednesday in U.S. Bankruptcy Court in New York, a day before a federal bankruptcy judge approved Enron’s sale of PGE to a group of investors headed by former Oregon governor Neil Goldschmidt and backed by Texas Pacific Group.

The set-aside was “a matter of security for terminating the Enron pension plan,” Gary Pastorius of the Pension Benefit Guaranty Corp., the federal agency that insures 29,500 defined-benefit single-employer pension plans, told the Tribune. Not all of the $2.3 billion would actually be required, added Pastorius, but for whatever amount that is required, “it’s Enron who is on the hook.”

The PBGC told the newspaper that it estimates Enron’s liabilities for underfunded pensions at around $352 million. But that figure, says the Tribune, does not account for an offset arrangement between the pension funds and the Enron Corporate Employee Stock Ownership Plan.

Federal law prohibits companies from offsetting pension plan obligations with ESOP assets. However, Enron was allowed to continue the practice because of a grandfather provision in the law, Pastorius explained to the San Antonio Business Journal in 2002. With Enron stock down to pennies in the wake of the company’s bankruptcy, added the Tribune, that $352 million pension liability could double.

Enron’s liabilities associated with PGE pensions have been on the federal agency’s radar since 200l, when Enron filed for bankruptcy. Enron’s PGE pension plan was one of three the company operated and insured under the PBGC.

For its part, the PBGC needs all the help it can get in covering pensions. In its annual report released January 15, the agency reported $11.2 billion in red ink — more than triple the then-record deficit with which it started the year. The record deficit is also a stark reversal of fortune since September 2000, when the agency reported a surplus of almost $10 billion. The agency attributed the year’s net loss of $7.6 billion to pension plan terminations and declining interest rates.

This deficit is ultimately the problem of other companies with pension plans insured by PBGC, since the agency is financed in part by the insurance premiums paid by those companies.