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PBGC Early Warning Program and M&A Transactions

    See: PBGC Webpage about its Early Warning Program / Early Warning Agreements


2017.03  PBGC Consent to Sears Asset Sale - see this agreement. 


2016.01.07  PBGC Intervention in Corporate Transactions under its Early Warning Program (By Brian J. Dougherty) 

The Pension Benefit Guaranty Corporation (PBGC) introduced its Early Warning Program (EWP) in the early 1990s, but didn’t publish any guidelines or standards for the EWP until mid-2000, in Technical Update 00-3. While the guidelines and standards have evolved since that time, the PBGC has not provided any publicly available update to Technical Update 00-3.

The purpose of the EWP is to identify corporate transactions that, in the PBGC’s view, may increase its insurance program’s exposure by weakening employer financial support for underfunded pension plans. When the PBGC identifies such a transaction, it contacts the pension plan sponsor to try to negotiate additional measures to secure plan funding. These transactions typically have involved controlled group breakups (e.g., sale of a subsidiary or the assets of a financially strong business unit), with or without the transfer of an underfunded pension plan outside the controlled group; leveraged buyouts; payments of extraordinary dividends; or substitutions of secured debt for significant amounts of previously unsecured debt.

The PBGC generally uses publicly available information, such as press reports or SEC filings, to identify these transactions. The PBGC may also rely on information from Form 10 or Form 10-Advance, which plan sponsors are required to file at the occurrence of a statutory reportable event (such as a change in membership of a plan sponsor’s controlled group, a transfer of pension liabilities outside the controlled group, or payment of an extraordinary dividend).

In recent years, the PBGC has focused on transactions affecting pension plans with aggregate underfunding of $50 million or more (determined on the basis of conservative plan termination assumptions) or 5,000 or more participants. This has produced a universe of about 1,500 companies that the PBGC actively monitors. In 2014, however, a brief interest rate increase improved pension plan funding overall. This prompted the PBGC to lower its monitoring standard to $25 million in aggregate underfunding, thus maintaining its active monitoring universe at about 1,500 companies. The current interest rate environment may cause the PBGC again to adjust its monitoring criteria to maintain a stable universe of about 1,500 companies.