District Court Upholds PBGC Denial of Restored Pension Fund’s Grant Application

Local 550’s plan was terminated in 2016 and restored itself in 2022 before applying for a special financial assistance grant, which was denied.



A federal court upheld the Pension Benefit Guaranty Corporation’s decision to deny a multiemployer plan’s application for special financial assistance.

The PBGC had denied the application because the Bakery Drivers Local 550 and Industry Pension Fund had terminated by mass withdrawal in 2016, then attempted to restore itself in 2022 with the intent to apply for an SFA grant. Local 550 challenged the PBGC’s decision in March in the U.S. District Court for the Eastern District of New York. The court ruled against the pension fund on October 26 in Board of Trustees of the Bakery Drivers Local 550 and Industry Pension Fund v. PBGC.

In 2011, approximately 60% of Local 550’s contributions came from Hostess Brands Inc., which declared bankruptcy in 2012 and was not required to pay withdrawal liability to the plan. In 2016, the remaining largest employers in the multiemployer plan transferred liability to the International Brotherhood of Teamsters and terminated the plan by mass withdrawal. The pension fund’s complaint noted that the PBGC approved this transaction and that it was done in the best interests of the plan.

According to the plan’s Form 5500 from 2016, the last year of its existence, it had 122 active participants at the beginning of 2016 and 0 at year’s end. It had 711 retired participants, 303 participants entitled to benefits in the future and 246 deceased participants with beneficiaries receiving benefits. The plan was 21.84% funded at the end of that year.

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The Floral Park, New York-based plan argued that it restored itself in September 2022 and met the criteria for a grant under the Special Financial Assistance program. Specifically, according to the PBGC’s final rule, a plan in critical and declining status in plan years 2020, 2021 or 2022 is eligible for a grant, in addition to other criteria. Since Local 550 was in critical and declining status in 2022, the year it was reconstituted, it asserted that denying the plan’s application was unlawful.

When the plan restored itself in 2022, it anticipated its insolvency by August 2023. The plan applied for a $132 million grant in January 2023. The PBGC denied the application because plans terminated by mass withdrawal are ineligible for a grant, and there is no process for self-restoration under the Employee Retirement Income Security Act. Only the PBGC can restore a multiemployer plan.

The district court ruled that a terminated plan cannot have status under the PBGC’s system for rating plan solvency and therefore cannot claim to have been in critical and declining status for the purposes of applying for an SFA grant. Further, ERISA does not permit plans to unilaterally restore themselves. Therefore, the PBGC acted reasonably within the statute in denying the application, according to the court decision.

John Lowell, a partner with October Three, explains that, “While the statute makes provision for PBGC to restore a plan that has been terminated via mass withdrawal, the statute neither specifically allows nor precludes a fund from doing that itself. The court found that PBGC was acting within the powers afforded it by Congress in saying that the fund in question could not restore itself and thereby make itself eligible for the taxpayer-funded Special Financial Assistance.”

Lowell adds that this is unlikely to be a recurrent problem, because this is “an unusual case in which the fund tried to avail itself of a novel legal theory. I do not see where this will have any effect on other pending or future applications for SFA money of which I am aware.”

Attorneys for the plan did not respond to a request for comment about whether they intend to appeal the court’s decision.

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Median Canadian Pension Plan Loses 3.7% in Q3

But median pension plans north of the border are up 1.6% year to date, according to Northern Trust.



For the quarter ending September 30, the median Canadian pension plan returned negative 3.7%, according to data from the Northern Trust Corp.’s Canada Universe. Stronger returns in previous quarters provided some cushion, resulting in a 1.6% increase in return year-to-date for the median Canadian plan.  

The Canada Universe tracks the performance of Canadian institutional defined benefit plans that subscribe to Northern Trust performance measurement services. 

Threats of a U.S. government shutdown, strikes by the United Auto Workers and the downgrade of the U.S. sovereign rating and 10 regional U.S. banks all impacted international markets and economies, particularly Canada, in the third quarter. According to Northern Trust, investors were alarmed by mixed economic readings, such as record oil prices that factored into inflation readings, combined with positive economic data, making investors fear that those metrics meant inflation could stay at elevated levels for an extended period of time.  

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Because of these economic uncertainties, yields trended higher, resulting in a sell-off in bonds and a decline in the equity markets, resulting in negative results for both asset classes during the quarter.  

According to Northern Trust, Canadian inflation rates (3.8% at the end of September, up from 2.8% at the end of June) are lower than at this time last year, although still higher than many central banks’ target levels. The Bank of Canada raised interest rates to 5% during the quarter, up 25 basis points from Q2. 

“The combination of uncertainty and high interest rates resulted in a decline for both equity and bond markets during the period” and resulted in a decline for the median Canadian pension plan, Northern Trust’s summary stated. 

“This past quarter demonstrated how rapidly volatility can resurface, creating unfavorable market conditions and increasing pressure on investment portfolios,” said Katie Pries, president and CEO of Northern Trust Canada, in a statement. “As monetary policymakers adhere to their mandates and exercise discipline amid these pockets of uncertainty, pension plan sponsors also maintained discipline in challenging environments, affording them the ability to deliver on their long-term pension promise.” 

 Northern Trust found that Canadian equities, as measured by the S&P/TSX Index, returned a 2.2% loss in the quarter, with information technology the best-performing sector. Consumer staples, materials and real estate were the weakest-performing. U.S. equities returned negative 1.2%, as measured in Canadian dollars, with only three out of 11 sectors positive. International developed markets, as measured by the MSCI EAFE Index, returned negative 2%. 

The Northern Trust Canada Universe tracked positive returns for the first and second quarters of 2023, with Canadian pensions returning a median of 4.2% and 1%, respectively. Negative returns were tracked in the first and second quarters of 2022, when Canadian plans returned –6.4% and –8.8%, respectively. In Q3 2022, Canadian plans returned 0.76%, and in Q4 2022, Canadian plans returned a median of 2.8%, resulting in a return of negative 12.8% for the full year.  

Given that Canadian pension funds, and the markets overall, had a rocky quarter, the Canadian economy fared somewhat better: Solid job growth was reported in August and September, with 100,000 jobs added, although the unemployment rate rose 0.1% to 5.5% during the quarter.  

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