PBGC Opposes Friendly's Attempt to Rid Itself of Pension

(October 17, 2011) — The Pension Benefit Guaranty Corporation (PBGC) has opposed Friendly’s attempt to dump its pension plan. 

The big question, industry sources tell aiCIO, is whether Friendly’s can still survive with its pension at the end of bankruptcy, after analyzing its funding obligations.

“Time after time, PBGC has worked successfully with companies and their creditors to make sure that the bankruptcy process recognizes the rights of pensioners, too,” PBGC Director Josh Gotbaum said in a statement. “We want to make sure that Friendly’s employees and retirees don’t get left out.”

Massachusetts-based Friendly Ice Cream Corp. filed for bankruptcy protection on October 5. The company also announced it was closing 63 restaurants. Friendly’s is owned by Sun Capital Partners, which intends to use the bankruptcy process to abandon the pension plan, but keep its ownership of Friendly’s.

According to PBGC, if the bankruptcy court allows Friendly’s and its owners to abandon the pension, the agency — which has worked with about 40 companies to preserve the pensions of more than 300,000 Americans since 2009 — will pay pension benefits to Friendly’s employees. However, because of limits set by federal law, retirees might get reduced pensions.

“It looks like Friendly’s and Sun Capital are trying to make their employees and retirees bear the brunt of the company’s restructuring; the employees deserve better,” Gotbaum added.

PBGC’s heightened responsibilities following the 2008 economic downturn, which has caused more corporate bankruptcies and pension failures, have contributed to its widening deficit.

In November 2010, PBGC revealed that its total deficit has increased 4.5% to $23 billion in the year to September 30, up from $22 billion the previous year. “This financial position is the result of inadequate plan funding and misfortunes that have befallen plan sponsors. In part, it is a result of the fact that the premiums PBGC charges are insufficient to pay for all the benefits that PBGC insures, and other factors,” the government’s pension insurer said. The PBGC said its total obligations increased by $11.5 billion to $102.5 billion. Yet, the agency had $79.5 billion in assets to pay those obligations. “The deficit — the difference between our assets and liabilities — is not an immediate cash crunch, since we have the assets to pay for the foreseeable future,” PBGC spokesman Jeffrey Speicher told aiCIO at the time.