Former PBGC attorney outlines distress termination strategy for underfunded pension plans

A former senior PBGC attorney is urging employers and advisers to treat distressed pension-plan terminations as a business survival issue, not just a benefits problem. His new article explains when PBGC distress and involuntary terminations can work outside bankruptcy and why early talks with PBGC can shape the outcome.

Why it matters: - Underfunded pension plans can push a struggling company closer to failure if the business cannot support both operations and retirement obligations. - A workable termination can keep a company alive, but it can also create major liabilities to the Pension Benefit Guaranty Corporation. - Employers, plan administrators, lenders, restructuring advisers and actuaries can use the guidance to avoid missteps that are hard to undo.

What happened: - Harold J. Ashner, a partner at The Wagner Law Group and former senior PBGC attorney, published an article in the Journal of Pension Planning & Compliance on PBGC distress and involuntary terminations. - The article is titled "PBGC Distress and Involuntary Terminations: A Brief Overview and Some Observations." - Ashner formerly served as Assistant General Counsel for Legislation and Regulations at PBGC from 1988 to 2005. - Marcia Wagner, founder and managing partner of The Wagner Law Group, said Ashner combines institutional knowledge with current case experience. - The article is available online through the firm's announcement.

The details: - Distress Test 3 can be a path for an employer to terminate a pension plan outside bankruptcy and stay in business. - PBGC would not expect a settlement the company cannot afford, because the test is meant to support business continuation. - Distress alone is not enough to justify termination. - The employer must show that it cannot continue with the plan and can continue after termination on realistic settlement terms. - PBGC may question why it should absorb a loss if major creditors have not made concessions. - PBGC may scrutinize contribution assumptions and operating projections. - If projections already assume a PBGC settlement, PBGC may treat that amount as the opening offer. - Ashner advises keeping that number reasonable without being overly generous. - When circumstances permit, Ashner recommends a pre-filing consultation with PBGC. - A high-level presentation can surface PBGC concerns early and may simplify or speed the process. - Once the proposed termination date has passed, Ashner recommends filing Form 601 promptly. - The 120-day period is a deadline, not a target. - A Notice of Intent to Terminate restricts participant loans, most lump sums, purchases of irrevocable commitments and payment of PBGC premiums from plan assets. - Ordinary plan administration continues after the notice. - Benefit payments continue, subject to applicable interim reductions. - Missed funding obligations can still trigger excise-tax and lien issues. - After PBGC approves the application and accepts the proposed termination date, PBGC may send an agreement terminating the plan and appointing itself statutory trustee. - Ashner says employers should not sign that agreement until a settlement with PBGC is in place. - Signing can create the liabilities that are still under negotiation. - PBGC can wear different hats in settlement talks. - As guarantor, PBGC may assert claims for unfunded benefit liabilities, unpaid premiums and termination premiums. - As trustee, PBGC may claim unpaid employer contributions. - A general release may not cover both roles. - The IRS, not PBGC, handles minimum-funding excise taxes. - PBGC typically will not immediately release potential fiduciary-breach claims. - More complex settlements can include installments, collateral, future-profit payments or other contingencies. - Ashner says settlement talks do not have to wait for formal approval, and companies should discuss options with the PBGC case team early. - Any settlement must remain affordable and allow the company to stay in business. - Ashner says affordability should come before recovery percentage. - Involuntary terminations are initiated by PBGC, while distress terminations are initiated by the plan administrator. - PBGC often completes an involuntary termination by agreement in what Ashner calls a "consensual involuntary termination." - For some plans, that route may avoid the full distress-termination process.

Between the lines: - The article frames PBGC negotiations as a practical cash-flow exercise, not a legal formality. - Ashner’s emphasis on affordability suggests that companies can lose leverage if they focus on the size of PBGC’s theoretical claim instead of what they can actually pay. - The warning not to sign an agreement too early signals that timing can shift bargaining power in PBGC cases. - The mention of a consensual involuntary termination points to a faster path when both sides want closure.

What's next: - Ashner is available to discuss options with employers, administrators and other advisers dealing with an underfunded pension plan. - The Wagner Law Group says its Washington, DC team includes several former senior PBGC professionals with experience across legal policy, actuarial analysis and plan termination. - The firm is positioning that bench of former PBGC officials to handle future distress and termination matters.

The bottom line: - For companies with underfunded pension plans, the right termination path depends less on a theoretical recovery number and more on what the business can realistically sustain.