The Pension Benefit Guaranty Corporation (PBGC) on October 16 announced a pilot program to offer mediation in some Termination Liability Collection and Early Warning Program (EWP) cases. PBGC’s Pilot Mediation Project will allow parties to resolve cases with the assistance of an independent dispute resolution professional.
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The EWP examines corporate transactions at pension plan sponsors that might put the plan at risk and the Termination Liability Collection program handles the cases of former sponsors of terminated plans subject to termination liability for the plans’ unfunded benefit liabilities.
The voluntary mediation project is part of the agency’s efforts to make it easier for sponsors to maintain their pension plans. “We want our customers to know we’re listening to them and we want to improve their experience in working with us,” said PBGC Director Tom Reeder, quoted in a press release. “By providing an alternative dispute resolution option for employers who sponsor ongoing and terminated plans, we expect to save time and money for both the government and our stakeholders.”
Types of Ineligible Cases
The PBGC said a case generally will not be eligible for the Pilot Mediation Project if the plan sponsor has a minimal ability to pay, if there is a pending court proceeding, or if there is limited time to act and the plan sponsor has declined to sign a “standstill” or “tolling” agreement.
After one year, PBGC said it will evaluate the Mediation Pilot’s success based on multiple metrics, including percent of eligible cases opting for mediation, resolution rate and time to resolution, and cost savings.
PBGC chose termination liability cases and EWP matters for the pilot project because they were seen as potentially reaping the greatest benefit from mediation.
The Federal Mediation and Conciliation Service will provide the mediators, the PBGC said, and the costs will be split among parties to the mediation “to prevent any appearance of partiality,” the PBGC said on its website.
The PBGC has not released a copy of the agreement with the federal mediation service, “and the specific procedural rules that would apply in this type of mediation are unclear,” said a client bulletin on the pilot program posted October 17 by law firm Proskauer Rose LLP.
For termination liability cases under the Pilot Mediation Project, a plan sponsor would have 120 days to provide certain information about its controlled group’s net worth, which generally applies when a plan sponsor needs to demonstrate that its alleged termination liability exceeds 30 percent of its controlled group’s collective net worth, according to the Proskauer bulletin. The PBGC then would review the submitted information and make mediation available within a reasonable time after completing its review of the information.
In early warning cases, the PBGC would begin mediation after the agency received enough responses to its information requests about the triggering situation.
‘Could Hold Some Promise’
“Given that many [EWP] cases evolve quickly and that the PBGC often only becomes involved in the period between the signing of a definitive agreement and the closing of the transactions contemplated by the agreement, it is unclear whether the PBGC and plan sponsors will have sufficient time to mediate many [EWP] cases.
“With that being said, the Pilot Mediation Program could hold some promise for plan sponsors that have sufficient time to complete the mediation process…,” Proskauer Rose advised.
As reported, the PBGC’s EWP drew attention earlier in 2017 (see, PBGC Removes Change in Credit Quality as Possible Trigger for Early Warning Program Review) when the agency clarified guidance issued in late 2016 that led many in the pension plan community to believe the program had been expanded. The PBGC said a review for an employer’s defined benefit (DB) retirement plan would not be triggered solely by a change in credit quality.
In the December 2016 guidance, the PBGC added for the first time a company’s credit deterioration or a downward trend in its financial metrics such as cash flow as possible triggers for an inquiry under the EWP.
Then agency in May updated its webpage on risk mitigation and the EWP, removing credit deterioration and a downward trend in company financials as risk identification factors. The EWP still includes the following factors as early warning signs for at-risk company DB plans, some of which may now be eligible for dispute resolution:
- A change in the group of companies legally responsible for supporting a pension plan (known as a controlled group), including a spin-off of a subsidiary;
- A transfer of significantly underfunded pension liabilities related to the sale of a business;
- A major divestiture by an employer that retains significantly underfunded pension liabilities;
- A leveraged buyout involving the purchase of a company using a large amount of secured debt; or
- The payment of a very large dividend to shareholders.
For additional information about eligibility, visit the PBGC–Plan Sponsor Pilot Mediation Project webpage.
| Jane Meacham is the editor of BLR’s retirement plan compliance publications. She has nearly 30 years’ experience as a writer/editor of financial services news. |