By Pension and Benefits Editorial Staff
The U.S. District Court for the Southern District of New York has issued several orders with respect to an underfunded pension plan that were requested by the Pension Benefit Guaranty Corporation (PBGC), including the establishment of a plan termination date.
Cessation of operations. A financial consulting firm that maintained an underfunded pension plan ceased all business operations no later than November 30, 2014. The cessation stemmed from the company owner’s illness and retirement. The PBGC filed suit against the company to ensure that participants received their statutorily guaranteed benefits. After it was unsuccessful in serving notice on either the company or its registered agents, it determined the company owner had died. The PBGC then filed a motion for default judgment.
Once a party is in default, a court must accept as true all factual allegations of the non-defaulting party. However, the court must determine whether the plaintiff’s allegations establish the defendant’s liability as a matter of law.
In this instance the court accepted the PBGC’s allegations and granted its request for plan termination. The PBGC made a formal determination that termination is necessary to protect the interests of plan participants, citing at least one plan participant who will not receive benefits until the plan is terminated.
The court also appointed the PBGC as trustee of the plan. Under ERISA Sec. 4042, if a covered pension plan terminates without sufficient funds to pay benefits, then the PBGC generally becomes trustee.
Plan termination date. Under ERISA Sec. 4048, if the plan administrator is unavailable, the court must determine the plan termination date. In the Second Circuit, a two-factor test is used for this determination, one that examines both the expectations of the participants and the financial implications of termination for the PBGC.
The court determined that the termination date requested by the PBGC, November 30, 2014, satisfied both factors. Regarding the participants, the court determined that by November 30, 2014, the participants had constructive notice of the plan’s termination. The employer had ceased operations by that point, such that the participants could no longer justifiably expect that the plan would continue. As to the PBGC’s financial interests, because this is the date recommended by the PBGC, the court is entitled to conclude that this date adequately serves the agency’s interests.
The court also granted the PBGC’s request that all records, assets or other property of the plan be transferred to the agency.
SOURCE:PBGC v. Booke & Company, Inc., as Plan Administrator of the Booke & Company Pension Plan (DC NY).
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