PBGC Seeks $1 Million+ in Liability Payments From Pension Plan in Trusteeship

The Pension Benefit Guaranty Corporation filed litigation on May 1 in federal court in Pennsylvania, seeking a court order to recover damages from the Fay Construction Co. Inc. Pension Plan.

The lawsuit was filed as a result of violations under the Employee Retirement Income Security Act and the pension plan’s failure to honor the settlement agreement, which was negotiated to guarantee continued payments to participants and beneficiaries of the plan, following the PBGC’s 2017 determination the plan should be terminated.

The PBGC filed a complaint seeking a court order directing Fay Construction Co. Inc. and Fay Development Company Inc. to pay to the federal agency $1,529,572 in unfunded benefit liabilities and a premium liability of $19,403.37, including both annual fixed rate and variable rate premiums and termination premiums, plus interest and penalties.

The PBGC collects insurance premiums, set by Congress, from employers that sponsor DB pension plans.

The accused “have not begun to use their best efforts” to fulfill the settlement agreement, attorneys for the PBGC wrote. “Defendants’ failures to comply with the settlement agreement deprive PBGC of the benefit of its bargain.”

The complaint seeks to have Fay Construction and Fay Development declared jointly and individually liable to PBGC for unfunded benefit liabilities, plus interest that continues to accrue through the date of judgment   

When a defined benefit pension plan covered under ERISA terminates with insufficient assets to pay all benefits to participants and beneficiaries, the PBGC typically becomes the regulatory trustee of the plan and pays benefits up to the statutory limit.

The PBGC filed a separate complaint against Stephen J. Fay, president of Fay Construction and Fay Development; Karen Fay, married to Stephen and a vested participant in the Fay Construction Co. Inc. Pension Plan; James S. Fay Jr., former treasurer of Fay Construction and Fay Development; Monique Fay, spouse to James and a vested participant in the Fay Construction Co. Inc. Pension Plan; and the Estate of Margory Ann Fay. The various family members and late family members owned the companies and the plan sponsor.  

To satisfy their liability for fiduciary breach to the pension plan Stephen J. Fay and James S. Fay Jr. were to each have paid the pension plan by a reduction on the monthly amount of their pension benefits, which respectively represented actuarial equivalent of $533,000 and $412,000 as of June 14, 2017, the date established by PBGC when the pension plan terminated.

As of the date of the PBGC complaint neither Stephen J. Fay nor James S. Fay Jr. have executed benefit waiver elections or obtained the spousal consents they were required to produce. And under the terms of the agreement, violations form events of default per the settlement.  

The PBGC requests a permanent injunction, ordering Fay construction and Fay Development and their directors, officers, shareholders, employees, agents, successors-in-interest, and assigns to use their best efforts to uphold the pledges they agreed to in the PBGC settlement.

The PGBC requests the court rule against defendants on six counts of alleged fiduciary breach; declare that the Fay fiduciaries are liable to PBGC for the $1,535,524.15 of losses suffered by the pension plan as well as pre-judgement and post-judgement interest; the Fay fiduciaries restore to the pension plan any profits the accused enjoyed through use of assets of the pension plan, if any. The PBGC also seeks to offset benefits the Fay fiduciaries, Karen Fay, and Monique Fay are entitled to receive under the pension plan against the amount the court orders the fiduciaries to restore to the pension plan; and judgement awarding PBGC all of costs of this litigation.

The separate complaints are Pension Benefit Guaranty Corporation v. Fay Development Co, Inc. and Fay Development Company, Inc.; and Pension Benefit Guaranty Corporation v. Stephen J. Fay et al.

Representatives of the PBGC by email said the agency does not comment on ongoing litigation. Fay representatives did not reply to a request for comment.