Pension plan may be terminated in bankruptcy, Hawker officials warnBy Molly McMillin
The Wichita Eagle
Hawker Beechcraft warned Thursday that it may have to terminate its defined benefit pension plans as it goes through Chapter 11 bankruptcy.
If so, its existing pension plans would be taken over by the Pension Benefit Guaranty Corp., a federal agency that pays benefits, but with caps, when an employer is no longer able to pay.
If the termination is part of the bankruptcy settlement, the PBGC would pay benefits to vested plan participants in much the same way retirees are paid now, information from Hawker Beechcraft said.
But it’s too soon to say what will occur, said PBGC spokesman Marc Hopkins. It’s up to the court to decide whether the federal agency needs to step in to deal with shortfalls in the funding of the pension plans.
The PBGC’s priority is to work with companies to keep their pensions going, PBGC’s director of communications, J. Jioni Palmer, said in a statement.
“We are committed to working with Hawker Beechcraft and its creditors so that the company can reorganize successfully, while also maintaining the retirement security of its nearly 20,000 workers and retirees,” Palmer said.
Collectively, Hawker Beechcraft’s three pension plans are 56 percent funded, with $769 million in assets to cover $1.4 billion in anticipated obligations.
If Hawker Beechcraft ended the plans, the PBGC assumes the assets and liabilities.
The agency also would pay $533 million of the plans’ $611 million shortfall.
It’s too early to know what that would mean for pension holders, Hopkins said.
“It’s our hope that they keep the plan going,” he said. “We’re a pension safety net, but only as a last resort.”
“We’ll step up and pay benefits up to the guarantee levels,” he said.
Today, the pension plans are still under the administration of Hawker Beechcraft.
“Everyone who is getting a check will continue to get a check,” Hopkins said. “Even in the event the PGBC will have to step in, the checks will continue uninterrupted.”
On April 27, the company sent a memo to retirees regarding pension benefits.
In the letter, the company told employees that their plan will continue to be funded as required by law. And that the benefit is guaranteed by the PBGC.
However, rules for a PGBC takeover say a company with an underfunded plan can apply for a “distress termination,” if the company can prove to a “bankruptcy court or to the PBGC that the employer cannot remain in business unless the plan is terminated.”
If the application is granted, the PBGC will take over the plan as the trustee and pay the plan benefits. Most participants and beneficiaries receive all the benefits they would have gotten if the company had retained the plan, according to the information given pension holders. But some people may lose certain benefits that are not guaranteed.
Besides guaranteeing pension benefits at a normal retirement age, the PBGC also guarantees most early retirement benefits, annuity benefits for survivors of plan participants and disability benefits for a disability that occurred before the date the plan was terminated.
In Hawker Beechcraft’s bankruptcy filing filed with the U.S. Bankruptcy Court in the Southern District of New York, the PBGC is listed as the company’s largest creditor.
That’s because the pension plans are underfunded, Hopkins said.
The maximum yearly amount the PBGC pays retirees is based on a formula prescribed by federal law.
Yearly amounts are higher for those older than 65 and lower for those who retire early or choose survivor benefits.
For example, the maximum yearly benefit for a 65-year-old retiree with no survivor benefit is $55,841, or $4,653 per month.
When a plan terminates, all additional benefit accruals cease, the agency said.
“If the plan terminates while the employer is in bankruptcy, the guarantee covers only benefits earned before the bankruptcy filing date,” according to information provided pension plan members.
Other benefits, such as health benefits, will continue uninterrupted, the company said.
Their 401(k) benefits will also continue, but with some delays. Bankruptcy restrictions will delay matching contributions to the fund for about 25 days.
“Once we receive approval (from the court), we intend to make up any missed matching contributions and make all future matching contributions in the ordinary course of business,” the company said.Reach Molly McMillin at 316-269-6708 or firstname.lastname@example.org.
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