Presenting a live 90-minute webinar with interactive Q&A Dealing with PBGC Reportable Events: A Practical Guide for Employers and Their Advisors TUESDAY, JANUARY 24, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Harold J. Ashner, Partner, Keightley & Ashner , Washington, D.C. Constance A. Donovan, Participant and Plan Sponsor Advocate, Pension Benefit Guaranty Corporation , Washington, D.C. Deborah A. Tully, FSA, Pine Cliff Consulting , Framingham, Mass. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Dealing with PBGC Reportable Events: A Practical Guide for Employers and Their Advisors Strafford Publications, Inc. Webinar/Teleconference January 24, 2017 Harold J. Ashner Deborah A. Tully, FSA Keightley & Ashner LLP Pine Cliff Consulting Inc.
Early Warning Program: PBGC Focus PBGC focus: increased risk to PBGC and/or pension o plans resulting from transaction, event, or trend Effect on credit quality of controlled group Changes in capital structure and effect on PBGC’s/pension plan’s position in structure Joint and several controlled group liability is key o “Long - run loss”/legal analysis: likelihood of future o termination, current vs. future PBGC loss Financial/practical analysis for planned transaction: is o transaction good or bad for plan/PBGC? 6
Early Warning Program: Triggers and Transactions, Etc. o Triggers for PBGC monitoring Aggregate controlled group underfunding = at least $50M Aggregate CG participant count = at least 5,000 “Other reasons as appropriate” ( e.g. , credit rating) o PBGC learns of transactions, events, or trends through Reportable events filings Company press releases and SEC filings Media reports PBGC’s own monitoring 7
Early Warning Program: Triggers and Transactions, Etc. (Cont.) o Transactions, events, or trends of concern Change in controlled group responsible for supporting plan Major divestiture by employer that retains significant underfunded pension liabilities Leveraged buyout involving purchase of company using large amount of secured debt Substitution of secured debt for significant amount of unsecured debt Payment of very large dividend to shareholders Significant credit deterioration. Downward trend in cash flow or other financial factors o Most Early Warning Program cases focus on transactions 8
Early Warning Program: Providing Information to PBGC Consider contacting PBGC first o Where contact is inevitable, sooner may be better Avoid last-minute complications Plan for PBGC involvement PBGC information requests re planned transactions o Timing flexibility if nothing imminent Protect confidentiality (confidentiality agreement and/or 4043(f) coverage as reportable event follow-up) Generally best to comply (subpoena authority) Request will cover transaction, plan(s), and makeup and financial status of pre- and post-transaction controlled group Demonstrate viability of post-transaction controlled group! 9
Early Warning Program: PBGC Analysis Contribution/financial projections may be key factors o in Early Warning Program analysis PBGC recovery analysis may also be a key factor o PBGC’s analysis will include assessment of Likely PBGC recovery if plan terminates pre-transaction Likelihood of future plan termination and likely PBGC recovery if transaction occurs with future plan termination Many variables ( e.g. , fire-sale pricing, claims of other creditors) can affect and complicate analysis 10
Early Warning Program: PBGC Leverage PBGC “clearance” o No legal requirement to get PBGC “clearance” of transaction But PBGC concerns can block transaction unless settlement reached Primary PBGC leverage: “involuntary termination” o (pre-transaction) Requires court approval or plan administrator agreement Would increase/accelerate liability, add termination premium, and likely lead to bankruptcy, job losses Initiation would likely trigger various defaults 11
Early Warning Program: PBGC Leverage (Cont.) PBGC can quickly set termination date o PBGC publishes notice “Locks in” termination date, related liability But subject to later court approval or agreement Potential 4069 or fraudulent conveyance action o (post-transaction) PBGC’s pre -transaction remedy can be too extreme o and its post-transaction remedy can be too uncertain But parties to transaction may be unwilling to proceed o absent pre-transaction PBGC settlement 12
Early Warning Program: Settlement Options PBGC has broad settlement authority (more like private o entity than government agency) Settlement possibilities include: o Additional contributions to plan May have other reasons to pay above minimum Agreement will prohibit using excess as prefunding balance But effect will be to reduce future minimum contributions Retention of plan by strong seller Guarantee by seller if future plan termination Grant to plan or PBGC of security interest Direct actuary-to-actuary, lawyer-to-lawyer, business-to- o business discussions can work well 13
Reportable Events: The Basics Reportable event: an event that may be indicative of a need to terminate a plan Reportable event may be a plan event or a corporate event Post-event reporting Obligation is imposed on plan administrator and contributing sponsor (but filing by either is deemed to be filing by both) Filing is due 30 days after actual or constructive knowledge of the occurrence of the event 14
Reportable Events: The Basics (Cont.) Advance reporting Only required if: Neither sponsor nor controlled group member to which event relates is “public company,” and Controlled group maintains plans that, in the aggregate (and disregarding plans with no unfunded vested benefits) have Unfunded vested benefits above $50M, and Funded vested benefits percentage below 90% Obligation is imposed only on contributing sponsor Filing is due 30 days before the effective date of the reportable event (without regard to actual or constructive knowledge) Post-event or advance reporting delinquencies: PBGC may assess ERISA Section 4071 penalties of up to $2,063 per day 15
Reportable Events: The Basics (Cont.) Plan events (post-event Corporate events (post-event reporting): reporting): Active participant reduction Change in contributing sponsor or controlled group* Failure to make required minimum funding payment Liquidation* Inability to pay benefits Extraordinary dividend or stock when due redemption* Distribution to a substantial Loan default* owner Insolvency or similar settlement Transfer of benefit liabilities* (previously “Bankruptcy or similar settlement”)* Application for minimum funding waiver* * Also subject to advance reporting 16
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