The Pension Benefit Guaranty Corporation (PBGC) can use its valuation method to calculate the Durango-Georgia Paper Co.’s terminated pension plan’s unfunded liabilities, says U.S. Bankruptcy Judge John S. Dalis of the U.S. Bankruptcy Court for the Southern District of Georgia, Brunswick Division in PBGC v. Durango-Georgia Paper Co. (In re Durango-Georgia Paper Co.) , 2017 BL 14361, Bankr. S.D. Ga., No. 2:02-bk-21669, 1/18/17.
At issue was the PBGC’s claim number 1581 for unfunded benefit liabilities of the Durango-Georgia Paper Company Pension Plan for Hourly Employees.
The PBGC argued that nonbankruptcy law controls, specifically Title IV of ERISA with its implementing regulations. The liquidating trustee, on the other hand, asserted that the Bankruptcy Code controls and that the claim must be calculated under bankruptcy valuation principles.
It is undisputed that ERISA is the underlying substantive law that created the claim, Dalis said, and that ERISA defines the unfunded benefit liability and requires that the Valuation Regulation be used to determine the amount of the Claim. Dalis said that the PBGC is correct, and ERISA and its regulations control the calculation of the claim.
The liquidating trustee argued that because the Valuation Regulation prescribes the discount rate that determines the present value of the benefit liabilities, the Valuation Regulation conflicts with the Bankruptcy Code’s requirement that the court determine the amount of claims. Dalis said that this argument is “misplaced,” because the unfunded benefit liabilities claim is not a stream of future payments.
The judge held that the Valuation Regulation is not contrary to, or qualified by, ERISA Section 502(b). First, he said, the unfunded benefit liabilities claim is not a claim for future payments; it is an obligation that is enforceable now. Second, the PBGC was authorized by statute to determine the amount of the claim, and its determination under the Valuation Regulation is binding on the debtors and therefore on the Bankruptcy Court.
The liquidating trustee argued that on the date of the petition, the pension plan was an executory contract novated upon the plan’s termination by the PBGC. Because the debtors chapter 11 plan rejected all such contracts, said Dalis, the unfunded benefit liability claim must be either allowed or disallowed under ERISA Section 502(g), which governs claims arising from the rejection of executory contracts.
Dalis said that the unfunded benefit liability claim is a statutory claim, and that ERISA provides the sole means of pension plan termination. As a result, the court ruled, plans cannot be rejected as executory contracts, and ERISA 502(g) does not apply.
Dalis said that since there was no conflict between the Valuation Regulation and the Bankruptcy Code and no qualification of the Valuation Regulation by the Bankruptcy Code, he was ordering that ERISA controls the calculation of the PGBC’s claim for unfunded benefit liabilities.
At issue was the PBGC’s claim number 1581 for unfunded benefit liabilities of the Durango-Georgia Paper Company Pension Plan for Hourly Employees.
The PBGC argued that nonbankruptcy law controls, specifically Title IV of ERISA with its implementing regulations. The liquidating trustee, on the other hand, asserted that the Bankruptcy Code controls and that the claim must be calculated under bankruptcy valuation principles.
It is undisputed that ERISA is the underlying substantive law that created the claim, Dalis said, and that ERISA defines the unfunded benefit liability and requires that the Valuation Regulation be used to determine the amount of the Claim. Dalis said that the PBGC is correct, and ERISA and its regulations control the calculation of the claim.
The liquidating trustee argued that because the Valuation Regulation prescribes the discount rate that determines the present value of the benefit liabilities, the Valuation Regulation conflicts with the Bankruptcy Code’s requirement that the court determine the amount of claims. Dalis said that this argument is “misplaced,” because the unfunded benefit liabilities claim is not a stream of future payments.
The judge held that the Valuation Regulation is not contrary to, or qualified by, ERISA Section 502(b). First, he said, the unfunded benefit liabilities claim is not a claim for future payments; it is an obligation that is enforceable now. Second, the PBGC was authorized by statute to determine the amount of the claim, and its determination under the Valuation Regulation is binding on the debtors and therefore on the Bankruptcy Court.
The liquidating trustee argued that on the date of the petition, the pension plan was an executory contract novated upon the plan’s termination by the PBGC. Because the debtors chapter 11 plan rejected all such contracts, said Dalis, the unfunded benefit liability claim must be either allowed or disallowed under ERISA Section 502(g), which governs claims arising from the rejection of executory contracts.
Dalis said that the unfunded benefit liability claim is a statutory claim, and that ERISA provides the sole means of pension plan termination. As a result, the court ruled, plans cannot be rejected as executory contracts, and ERISA 502(g) does not apply.
Dalis said that since there was no conflict between the Valuation Regulation and the Bankruptcy Code and no qualification of the Valuation Regulation by the Bankruptcy Code, he was ordering that ERISA controls the calculation of the PGBC’s claim for unfunded benefit liabilities.
- Log in to post comments