PBGC takes action to protect Lehman pension plan ahead of investment business sale

By Caroline Salls

Pittsburgh, Dec. 12 - The Pension Benefit Guaranty Corp. began court action Friday to protect the benefits of more than 26,500 workers and retirees of Lehman Brothers Holdings Inc. and its subsidiaries, according to a PBGC news release.

The PBGC said it estimates that Lehman's 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 said it expects to be responsible for $17.9 million of the $42.6 million shortfall.

According to the release, the PBGC is seeking approval from the U.S. District Court in Manhattan to end the Lehman Brothers Holdings Inc. Retirement Plan. The move comes ahead of a Dec. 22 bankruptcy court hearing on the sale of Lehman subsidiaries that make up the firm's investment management business.

The agency said it acted 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.

Under the Employee Income Retirement Security Act of 1974, the federal legislation that created the PBGC, the agency is empowered to collect claims from members of a plan sponsor's controlled group, like the subsidiaries of Lehman's investment management business that may be sold this month.

The PBGC said the entities are directly or indirectly 80% owned by their parent company.

The agency said it acted to end Lehman's plan because it stands to be abandoned following the liquidation of substantially all the firm's assets, as well as the increased financial risk to the 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, and the PBGC said it believes that Lehman's non-bankrupt controlled group members could afford to take care of the pension plan.

If that does not 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 Dec. 12.

Until the PBGC becomes trustee, the pension plan remains ongoing under Lehman's sponsorship.

New York-based Lehman Brothers is the fourth-largest U.S. investment bank. It filed for bankruptcy on Sept. 15, and its Chapter 11 case number is 08-13555.

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