What is the Maximum Amount of the PBGC Lien That May Be Imposed with Respect to a Terminated Plan?
If in connection with the termination of an underfunded defined benefit plan a company fails to pay its liability to the PBGC, a lien may be created in favor of the PBGC (assuming that creation of the lien is not stayed under bankruptcy law). The maximum amount of the lien that may be imposed is equal to the lesser of (i) the total amount of any liability owed to the PBGC (as determined under ERISA) as of the plan’s termination date or (ii) 30 percent of the “collective net worth” of the plan sponsor and all members of its controlled group.12 However, the automatic stay imposed by the Bankruptcy Code will typically prohibit the PBGC from creating and/or perfecting post-petition liens against debtors, and courts have typically rejected the PBGC’s attempts to assert priority status for claims for post-petition termination liabilities. As a result, the PBGC’s claims often end up being treated as general unsecured claims. It is worth noting that if the automatic stay is not in effect and t
