(June 15, 2012) — A New York federal judge has permitted the Pension Benefit Guaranty Corporation (PBGC) to take over as the trustee of the pension plans of the law firm Dewey & LeBouef, which filed for bankruptcy on May 28, 2012.
The PBGC, a federal agency that assumes the pension liabilities of companies in bankruptcy, will now oversee the law firm’s three plans that together are estimated to be underfunded by roughly $80 million. The plans cover about 1800 participants.
Created because of the Employee Retirement Income Security Act in 1974, the PBGC is designed to serve as a pension-of-last resort for workers at companies that enter bankruptcy proceedings, allowing participants to collect at least a portion of their earned benefits. The PBGC is financed by insurance premiums it charges to corporate pension plans. The current cap for individual benefits after the agency takes over a plan is at $56,000 per year.
The PBGC, however, is not immune to the vagaries of the marketplace, and since 2008 it has labored under an increasingly large deficit. Rocked by a volatile equities market and ever-lower interest rates, the agency reported in November 2011 that its deficit had reached a record $26.1 billion. Its assumption of the benefit obligations of several large corporations that went under—most notably auto parts manufacturer Delphi Corp. in 2009, which hit the agency with a $6.3 billion unfunded liability—has further exacerbated its underfunded status.