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The Pension Benefit Guaranty Corporation can use its valuation method to calculate the unfunded benefit liabilities of the Durango-Georgia Paper Co.'s terminated pension plan, a bankruptcy court ruled, delivering a win to the federal pension agency ( PBGC v. Durango-Georgia Paper Co. (In re Durango-Georgia Paper Co.) , 2017 BL 14361, Bankr. S.D. Ga., No. 2:02-bk-21669, 1/18/17 ).
It’s the Employee Retirement Income Security Act and its regulations—not the bankruptcy code—that control the calculation of the PBGC’s claim for unfunded benefit liabilities, Bankruptcy Judge John S. Dalis held Jan. 18. Granting partial summary judgment to the PBGC, Dalis rejected the trustee’s request to apply an independent valuation method controlled by the bankruptcy code, which would have meant using the controversial “prudent investor” standard.
The prudent investor standard dramatically reduces the PBGC’s claims for unfunded benefit liabilities, the PBGC has argued. Bankruptcy courts previously have applied certain discounts to PBGC claims to account for the present value and, believing that the agency’s valuation method overstated the claim, adopted the prudent investor standard. Regarding this analysis as “flawed,” Dalis joined other judges in Virginia and Georgia that have upheld the PBGC’s calculation method.
Agreeing with the PBGC, Dalis said the PBGC’s claims can’t be regarded as future payments but as a present right to recover.
“The more recent—and better reasoned—cases understand a claim for unfunded benefit liabilities not as a stream of future payments for which the debtor is liable but as the PBGC’s present right, granted by statute, to recover an amount determined under the same statute,” the court said.
The court rejected the trustee’s argument that the PBGC’s calculation method contravened the bankruptcy code. The agency is authorized by statute to determine the amount of the claim, and its determination under the valuation regulation is binding on the debtors and the court, the judge said.
The opinion was issued by the U.S. Bankruptcy Court for the Southern District of Georgia.
Duane Morris LLP, Hunter MacLean Exley & Dunn PC, Watson McCallum LLP and Stone & Baxter represent the trustee.
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