I find that the presence of pension obligations has a significant impact on the bankruptcy process, and that this impact is consistent with opportunistic filings on the part of firms who sponsor pension plans. This is particularly troublesome given the poor funded status of most pension plans as a result of the financial crisis, and the large deficit at the Pension Benefit Guaranty Corporation (“PBGC”), the federal agency that insures these plans. The presence of a pension plan, the size of the pension plan, and the financial condition of the pension plan are all determinants of the decision to file for bankruptcy even after controlling for the financial health and total liabilities of the firm. In other words, $1 of pension liability is a stronger predictor of a corporate bankruptcy filing than $1 in non-pension liability. In addition, sponsors of pension plans are more likely to seek a forum that increases the likelihood that the court will transfer trusteeship of the pension plan to the PBGC. Sponsors of pension plans also spend longer in bankruptcy, thus avoiding contributions to the pension plan that would otherwise be required under ERISA. The level of pension underfunding is a very strong predictor of whether the PBGC is assigned trusteeship. This creates poor incentives for poorly performing firms to fund their pension plans.
|Original language||English (US)|
|State||Published - Jan 2012|