In a recent ruling, the Bankruptcy Court for the Southern District of Georgia held that the Pension Benefit Guaranty Corporation (PBGC) can use the Employee Retirement Security Act of 1974 (ERISA) valuation method to calculate the unfunded benefit liability of the Durango-Georgia Paper Company’s (Durango) terminated pension plan. PBGC is a U.S. government agency that protects the retirement incomes of nearly 40-million American workers. This court ruling is a significant win for PBGC.
Brief Overview of The Bankruptcy Court’s Ruling
In PBGC v. Durango-Georgia Paper Co. (In re Durango-Georgia Paper Co.) the PBGC argued that ERISA controls the calculation of Durango’s unfunded benefit liabilities (2017 BL 14361, Bankr. S.D. Ga., No. 2:02-bk-21669, 1/18/17). Under ERISA, the PBCG’s Claim in Durango’s bankruptcy filing would be calculated using the assumptions in the code, also known as “Valuation Regulation.” (Id. 2)
The Liquidating Trustee assigned to Durango’s bankruptcy argued that the Bankruptcy Code should control how PBCG’s Claim for unfunded liabilities are calculated. The valuation principles under the Bankruptcy Code could mean applying a “prudent investor” standard, possibly “refashioning the Valuation Regulation with [a] different interest rate and discount rate assumptions, or using some other approach to determine the present value of the Claim.” (Id.) If the Claim were calculated using the prudent investor standard, the Claim amount would be dramatically reduced, effectively decreasing the amount the PBCG would be paid from Durango’s liquidated assets.
The Court agreed with the PBCG’s argument and held that ERISA and its regulations control the calculation of the Claim. The Court reasoned that there was no conflict between the Valuation Regulation and the Bankruptcy Code, and therefore granted partial summary judgment to the PBGC.
In Durango’s bankruptcy case its assets are being liquidated to pay back a portion of its debts. One of Durango’s creditors, the PBGC, is fighting to ensure the highest payout of their Claim possible. This case involves a large corporation with millions of dollars in assets. Most often individual bankruptcies filed by people are not so convoluted.
If you’re considering bankruptcy, you may feel overwhelmed or scared of the bankruptcy process. We’re here to tell you that generally, it isn’t an adversarial process, but rather a cooperative process with the goal of getting you out of debt and being fair to your creditors.
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