September 20, 2010

 

M10-037

 

TO: SPEEA Council Members

FROM: SPEEA Legislative & Public Affairs Committee

SUBJECT: PRE-SUBMITTED BUSINESS: Support of Defined Pension Protection in Global Mergers and Acquisitions


Background

ERISA legal protections were written for domestic companies. Pension benefits for workers and retirees are at risk in mergers and acquisitions, especially in the case of acquisitions by foreign owners. The laws should be modified to clarify the pension plan obligations of parent foreign owners should their U.S. subsidiary be spun off or dissolved. Clarification of the law must include situations where foreign corporations that own U.S subsidiaries are also acquired by a third party foreign-owned corporation or individuals.

(See several related white papers at http://www.nrln.org/pvtflyin.html . Item IV in the paper titled Protecting Retiree Benefits - Pension Benefit Guaranty Corporation Rules Reform applies particularly to this motion.)

 

Motion

It is moved that: THE SPEEA COUNCIL DIRECTS THE L&PA COMMITTEE TO SUPPORT THE GENERATION AND PASSAGE INTO LAW OF MEASURES TO PROTECT DEFINED PENSIONS IN GLOBAL MERGERS & ACQUISITIONS.

 

Pros:

         Would protect pension benefits of current workers.

         Would protect pension benefits of current retirees by law, if they are not protected by collective bargaining.

         Workers need protection in a global economy.

Cons:

         No current bill isolates these concerns.

         Might run afoul of trade agreements.

         If pension costs make a business entity unable to merge or be acquired, workers might lose jobs and benefits, and pension costs might default to the PBGC.

 



 

 

 

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Background, from the National Retiree Legislative Network

 

Defined Pension Protection in the Global Mergers and Acquisitions World

 

U.S. corporations serve as plan sponsors of defined benefit pension plans and are obligated to comply with the Employment Retirement and Income Security Act (ERISA) fiduciary responsibilities to maintain and fund such plans for the benefit of U.S. plan participants. The law is reasonably clear and U.S. courts have stood guard to ensure adherence to ERISA requirements. In the event a plan becomes underfunded or otherwise endangered, ERISA provides for certain protections and steps to be taken. In the event a plan should be terminated, the Pension Benefit Guarantee Corporation (PBGC) has an obligation to step in and protect pension benefits.

 

The rush to globalize the production and sales of goods and services has led to an acceleration of global restructuring of corporations and rapid growth of foreign investments in U.S. companies and their takeover through the mergers and acquisitions process. Where foreign-owned subsidiaries have ERISA-protected plans in place, they must continue adherence to ERISA rules. However, it is unclear as to what a parent foreign owner's obligations are to fund and abide by ERISA should the subsidiary be spun off or dissolved. These obligations are even less clear where foreign corporations that own U.S. subsidiaries are also acquired by a third party, foreign-owned corporation.

 

Complicating the matter is the concern that the PBGC's obligations and rights are unclear and maybe unenforceable upon a foreign-owned subsidiary. There is also ambiguity as to whether or not the Department of Labor (DOL) has jurisdiction over matters such as Freedom Of Information Act (FOIA) requests and ERISA compliance when foreign-ownership issues are in play.

 

Alcatel's acquisition of Lucent Technologies and subsequent rumors that Alcatel-Lucent may be a target for takeover; Fiat's equity stake in Chrysler; the possibility of airline mergers, and the potential for other U.S. Global companies such as Kodak, John Deere, and Caterpillar to be acquired compels NRLN action.

 

The ability of U.S. retirees and active employees to obtain information under the FOIA is fuzzy and the applicability of ERISA and PBGC rules is very tenuous. The NRLN undertook a detailed study of the protection of defined pension benefits in the M&A driven global economy and encourages the DOL, the PBGC, and Congress to take similar action.

 

(The NRLN PBGC study is published in a white paper available on the NRLN.org web site.)