Employees of U.S. nuclear power firm Westinghouse Electric Co LLC, which is bankrupt and reeling from a failed reactor project, got a nasty surprise recently: in the eyes of the U.S. government's pension insurer, its retirement plan has a massive shortfall.
While bankrupt companies often have big pension deficits, the vast majority flag the underfunding years in advance of filing for Chapter 11. By contrast, the Westinghouse Electric Co Pension Plan, which has about 9,700 participants, appeared fully funded in its most recent report to the Department of Labor in 2015.
The Pension Benefit Guaranty Corp estimated the pension plan is unfunded by $937 million, according to previously unreported court filings in August.
The shortfall is conditional on Westinghouse using the tools of bankruptcy to terminate the plan. In that case, the PBGC would step in, take over the plan and apply its more conservative accounting.
Westinghouse spokeswoman Sarah Cassella said the company has not told the agency it will end the plan.
Westinghouse is considering bids for the company, and has asked potential buyers to assume the pension would be maintained and that annual contributions would continue near current levels, according to a person familiar with the bidding process. However, Pittsburgh-based Westinghouse, which is owned by Toshiba Corp of Japan, is expected to attract private-equity investors who tend to want as few obligations as possible.
One actuary who advises pension plans said the PBGC claim may encourage buyers to insist Westinghouse terminate the plan. "It highlights the poorly funded status and so no one really wants to take on the defined benefit plan," said Greg Reardon, of consulting firm Cheiron Inc.
Potential Discontent
The PBGC claim exceeds the plan's $926 million in assets and according to PBGC data it would be among the 10 largest for a pension shortfall, ranking ahead of Trans World Airlines in 2001 and Pan American Air in 1991 and 1992. The claim stems not from mismanagement or fraud, but the way Westinghouse and the PBGC determine how much is needed today to pay for future pension benefits.
Under Department of Labor rules, Westinghouse is required to assume that a bond portfolio will earn a much higher rate of return than the current market rates, which are used by the PBGC.