The Pension Benefit Guaranty Corporation (PBGC) recently announced that it has asked a bankruptcy court to continue the company’s defined benefit pension plan, siding with the employees and retirees of Harry & David Holdings Inc. The food and fruit gift basket company is currently in Chapter 11 bankruptcy and is attempting to terminate its underfunded pension plan in order to eliminate the liabilities associated with providing pension benefits for its 2,700 workers and retirees.
Harry & David’s plan to use bankruptcy to abandon its pension obligations when the company is planning to stay in business is called “pension dumping.” We have seen it happen before – most famously, with United Airlines, which saddled the PBGC with the largest pension termination in its history when it reorganized. To make matters worse, after dumping its pension plans, slashing workers’ paychecks, and exiting bankruptcy, United handed out bonuses and stock options to company executives.
Fortunately, the PBGC’s financial analysts have determined that it is possible for Harry & David to emerge from bankruptcy with its pension plan still intact – making good on the promises the company made to its employees.
With this case, the PBGC is taking a stand by saying that financially struggling companies cannot use bankruptcy to automatically escape from their pension obligations. This position not only protects the PBGC, which otherwise would have to guarantee the employees’ pensions, but also protects the employees’ promised benefits that might otherwise be reduced. This is because the PBGC only insures benefits up to a certain guaranteed limits.
Bankruptcy should not be an easily travelled avenue that allows companies to emerge with a completely clean slate. Rather, bankruptcy exists to allow companies to maintain financial viability.
In the PBGC’s press release, Director Josh Gotbaum said, “We work to preserve both businesses and their pensions. PBGC doesn’t ask a company to risk its business if it can’t afford its pension plan, but many companies have gone through bankruptcy with their pensions intact, and we think Harry & David might be one of them.”
The Pension Rights Center applauds the PBGC for asking the bankruptcy court to make Harry & David do the right thing for its employees.