The Pension Benefit Guaranty Corporation (PBGC) has released a statement on the reorganization plan of Avaya, a multinational communications solutions company. The plan includes a proposal to maintain its pension plan for hourly employees but end its pension plan for salaried employees.
Avaya sponsors two underfunded pension plans that are insured by PBGC: one for hourly employees and one for salaried employees. The Avaya pension plan for salaried employees covers nearly 8,000 participants and has been frozen since 2003. The plan is 58% funded, with plan assets of $1.5 billion and liabilities for future benefits of $2.6 billion, and thus is underfunded by $1.1 billion, says PBGC.
The Avaya pension plan for hourly employees covers approximately 6,900 participants and benefit accruals are not frozen. PBGC reports that the plan has assets of $800 million and liabilities for future benefits of $1.4 billion, and thus is underfunded by $600 million. Avaya also sponsors a nonqualified, supplemental pension plan for certain salaried retirees that is not insured by PBGC.
Avaya filed for bankruptcy protection in January 2017. The company’s original reorganization plan proposed to keep both PBGC-insured pension plans ongoing upon emergence from bankruptcy. However, the company and its secured creditors have now concluded that Avaya can support and keep the hourly pension plan but that termination of the pension plan for salaried employees is necessary for the company to emerge from bankruptcy.
Under Avaya’s new plan of reorganization, the company will keep its hourly pension plan but seek bankruptcy court approval to terminate and transfer its plan for salaried employees to PBGC. The new plan of reorganization is subject to approval by the bankruptcy court. Included in the company’s new reorganization plan is an agreement between Avaya, its first lien secured creditors and PBGC. The agreement specifies the recovery amounts that PBGC would receive on its claims against Avaya if the company’s application to terminate the pension plan for salaried employees is approved.
For information on the PBGC and benefits guaranteed by PBGC for single-employer pension plans, see PBGC Guaranteed Benefits.