News Briefings - Pension & Benefits

The following article was taken from the 12/22/08 issue of Pension & Benefits Week.

12/22/08 -- PBGC sues to protect pensions at Lehman Brothers

PBGC has filed suit to end the Lehman Brothers Holdings' pension plan, and, thus, protect the benefits of Lehman's and its subsidiaries' 26,500 workers and retirees. Lehman, a New York City-based financial services firm, is operating under bankruptcy court protection. (PBGC News Release, 12/15/2008)

According to PBGC, the Lehman pension plan is 95% funded, with $898.2 million in assets to cover $940.8 million in benefit liabilities. If the plan ends, the agency expects to be responsible for $17.9 million of the $42.6 million shortfall.

On December 22, the bankruptcy court will hold a hearing on the sale of Lehman subsidiaries that make up the firm's investment management business. PBGC wants to end Lehman's pension plan before the sale so that the subsidiaries being sold remain liable for the pension plan's unfunded benefit liabilities. ERISA permits PBGC to collect claims from members of a plan sponsor's controlled group, such as the subsidiaries of Lehman's investment management business that may be sold this month. Such entities are directly or indirectly 80% owned by their parent company.

PBGC said that it acted to end Lehman's plan because the plan stands to be abandoned following the liquidation of substantially all the firm's assets, and the increased financial risk to PBGC if the subsidiaries involved in the current sale exit the controlled group and escape liability for the pension plan. None of the buyers have assumed responsibility for the pension plan. PBGC believes that Lehman's non-bankrupt controlled group members could afford to take care of the pension plan. Should that fail to happen, the agency will take over the assets and use insurance funds to pay guaranteed benefits earned under the plan, which will end as of December 12, 2008. Assumption of the plan's unfunded liabilities will have no material effect on the PBGC's financial statements, according to generally accepted accounting principles. Until PBGC becomes trustee, the pension plan will remain ongoing under Lehman's sponsorship.

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