How is the Amount of the PBCGs Claim for Termination Liability in Bankruptcy Determined?
In connection with an involuntary termination or distress termination of a defined benefit plan, the PBGC will typically file a claim for termination liability in an amount equal to the plan underfunding (i.e., the excess of the actuarial present value of benefit liabilities under the plan over the fair market value of the plan’s assets). The PBGC generally asserts that the amount of benefit liabilities under a terminated plan should be determined based upon interest rate and other actuarial assumptions set forth under applicable PBGC regulations. Use of the PBGC assumptions generally leads to an increase in the amount of benefit liabilities as compared with other actuarial methodologies and thus a larger claim by the PBGC. In several instances, however, courts have found that bankruptcy principles require that interest rate assumptions other than those proposed by the PBGC should be used.
