One big job for PBGC is to make sure that companies with pension plans finance those plans and PBGC's safety net. The best outcome is always for a company to keep its own pension plans. But when it can't, we also fight in court to recover the money that the company owes for its pensions.
A recent case involved the Daytona Beach, Fla. News-Journal, a newspaper in receivership – meaning that a court ordered the sale of the paper. The business owed PBGC $15 million for pension benefits that the newspaper owed its employees but that PBGC is now paying.
But in court, another creditor made a claim for an amount greater than the value of the entire business, based on its former ownership of the company. A Florida court gave that claim priority – leaving PBGC and others out in the cold.
A PBGC staff attorney researched Florida law and found that the court had made an error. With that information PBGC successfully appealed the ruling. Florida law says that claims arising from debt get priority over claims arising from ownership. The appeal kept PBGC's claim alive and may yet enable PBGC to collect significant funds from the newspaper.
"The decision supports the general rule that debt comes before equity," said Chief Counsel Izzy Goldowitz, "so it's an important precedent."
Read the appeals court's full decision. [PDF]
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