A bankruptcy judge will soon decide the outcome of more than $7 billion in liability claims from multiemployer pension plans (MEPPs) against bankrupt Yellow Corp. Discrepancies around the interpretation of Congress’ directives and intentions in a 2021 pension fund bailout package were at the center of a Tuesday hearing in a Delaware courtroom.
Counsel for the MEPPs that Yellow (OTC: YELLQ) once contributed to argued that the plans aren’t required to include special financial assistance received from the American Rescue Plan Act as an asset when calculating pension withdrawal liabilities. It said Congress provided Pension Benefit Guaranty Corp. (PBGC), the pension insurer overseeing the distribution of nearly $100 billion in bailout money, wide authority when crafting guidelines for the use of the funds.
PBGC required the government’s payments to the MEPPs to be phased in, or realized, over time. That allows the plans to slowly cure unfunded vested benefits on their balance sheets, keeping contributing employers from seeking an early exit as they are still on the hook for withdrawal liabilities. Counsel said the practice will ensure the solvency and longevity of the MEPPs, as it believes Congress intended.
In some instances, the bailout money hadn’t been received by the MEPPs at the time of Yellow’s withdrawal, which allows the exclusion of that special financial assistance as an asset, the plans contend.
Michael Slade, counsel to Yellow and partner at Kirkland & Ellis, said the money was provided by Congress in a lump sum, and received or not, is an asset and should be included when calculating unfunded vested benefits and ultimately an employer’s withdrawal liability. He also said that antecedent legislation (Employee Retirement Income Security Act of 1974) doesn’t define the term assets but “common sense” does.
“Telling plans that they should ignore a lump sum cash payment that the government is required by law to provide to them … it’s hard to say that that sort of statement, regardless of what you say it is, is reasonable or consistent with anybody’s expectations since you are 100% sure you are going to be receiving the money,” Slade said.
Judge Craig Goldblatt admitted Tuesday he’s “stuck” on how to interpret the “no-receivable” condition, likening the grant from Congress to U.S. Treasury bonds, which are included as assets at discounted valuations even though they haven’t reached maturity.
Central States Pension Fund said the former less-than-truckload carrier owes it nearly $5 billion from an early withdrawal from the plan even though Central States received $35.8 billion from the government and says it’s nearly fully funded currently.
The remainder of the claims come from other MEPPs that received bailout money as well as a couple that did not. In past filings, counsel for Yellow has acknowledged that Yellow owes money to some of the plans that didn’t receive assistance but also contends that a “double recovery” from those that did would leave some plans, as well as other creditors to the estate, with only “pennies on the dollar,” if anything at all.
The parties also disagree on whether the withdrawal liabilities allocated to Yellow should be capped at 20 years of total payments (per the standard), and if that payment stream needs to be discounted to present value and what that discount rate should be. Also, there is a discrepancy about the contribution rates some of the MEPPs used when calculating the withdrawal liabilities.
The MEPPs said the 20-year cap on the liabilities isn’t required as Yellow is in default with the plans, making them immediately liable for all amounts owed. They also said there is no need to discount payments as the 20-year repayment schedule went away when the company defaulted.
Yellow accused the PBGC of overstepping its authority by not implementing “reasonable conditions.” It said the plans receiving special financial assistance no longer have unfunded vested benefits, therefore there are no longer any withdrawal liabilities. It also said that the PBGC has rewritten the rules on how unfunded vested benefits are calculated.
The “withdrawal liability is the employer’s proportionate share of the plan’s unfunded vested benefits calculated as the difference between the present value of the vested benefits and the current value of the plan assets,” Slade said.
Yellow has said in the past that it likely owes less than $1 billion in withdrawal liabilities. Any significant payout above that would likely wipe out shareholders.
Goldblatt concluded that he’s “struggling” with the complexities of the case and has “more work to do” but hopes to have a ruling “as promptly as reasonably possible.”
The matter before the court Tuesday included motions from the MEPPs, PBGC and Yellow for partial summary judgments. The case could still go to trial if the motions are denied.
