Yellow Corp's pension dispute appeal has been denied
The Pension Benefit Guaranty Corporation (PBGC) has been given the power to establish guidelines ensuring that bailout funds for multiemployer pension plans (MEPPs) are used exclusively for plan benefits and costs. This authority was granted by the federal government through the American Rescue Plan Act of 2021.
The move comes in response to Yellow Corp.'s attempt to evade obligations tied to its sudden shutdown and exit from pension plans. The PBGC, in response, has created two key regulations. The first states that special financial assistance awarded to MEPPs will not be recognised as a plan asset until the money is actually received. The second mandates the recognition of the funds will be phased in over time.
The goal of these regulations is to prevent contributing employers from using the bailout to exit the plans, thus maintaining the financial stability of the MEPPs. Employers party to these plans are required to pay their allocable share of unfunded vested benefits when exiting a plan.
In a related development, the U.S. Court of Appeals for the Third Circuit has ruled against Yellow Corp. and MFN Partners to uphold a ruling requiring them to pay pension withdrawal liabilities. The withdrawal liability claims attached to Yellow once totalled more than $6.5 billion, with roughly $4.8 billion held by the Central States Pension Fund.
Yellow, however, argues that the plans are now fully funded following a 2021 pension fund bailout package and that it owes little to nothing to the plans that covered its union employees. This argument has been met with opposition, with the appeals court upholding the lower court's ruling that Yellow is required to honour an agreement with Teamsters funds in New York and Western Pennsylvania.
The cash from the bailout will be used to settle the outstanding claims, including those from the pension plans, employees, and other creditors. A waterfall plan before the Delaware court has designated some of the claims, like those from employees, as "priority." Those claims would be paid in full, subject to a cap of $15,150, according to a recent Teamsters memo.
As of July, Yellow Corp. had $623 million in cash, providing the necessary funds to meet its obligations. The estate of Yellow Corp. has liquidated all but 11 of the carrier's more than 325 terminals.
The American Rescue Plan Act also gives the PBGC the power to create guidelines to prevent employers from avoiding withdrawal liabilities. This is a significant step towards ensuring the long-term financial stability of multiemployer pension plans.
