WASHINGTON -- The U.S. Supreme Court left open yesterday a loophole for companies that struggle to keep putting money into their workers' pension plans, allowing them to shift some funding obligations to the government by filing for bankruptcy.
The court did not issue a formal ruling, but it turned aside an appeal by the Pension Benefit Guaranty Corp. which sought to close that loophole.
The PBGC is the government corporation that operates an insurance program to cover companies' unfunded pension obligations. When it takes on a company's obligation, it then has a claim against the company.
The PBGC said it often winds up liable for pensions of companies that declare bankruptcy, because the firms no longer can afford to support their retirement plans. In recent years, the PBGC said, eight of its 10 largest assumptions of liabilities involved bankrupt companies.
In the case the PBGC tried to put before the justices, the 10th U.S. Circuit Court of Appeals in Denver ruled that bankruptcy law, not federal pension benefit law, determines how much money the PBGC may collect from a bankrupt company that has failed to meet its commitments to finance a retirement plan.
The appellate court also ruled that PBGC claims against bankrupt companies receive no priority among creditors of the failed companies.
That ruling, the PBGC argued in its appeal, "gives employers with large under-funded pension plans a powerful incentive to terminate them in bankruptcy."
The appeals court ruled in a case involving CF&I Steel Corp., which filed for bankruptcy after sluggish economic conditions in the steel industry left it unable to make its annual payments into its pension plan.
The company gained the appeals court's approval for a reorganization plan that cut -- by about $100 million -- its debt to PBGC for taking over its pension obligations.
Pub Date: 6/02/99