This past October, the Pension Benefit Guaranty Corporation (PBGC) announced it was beginning a pilot program that will offer mediation to plan sponsors to facilitate resolution of negotiations in two key PBGC program areas. The PBGC will offer mediation to ongoing plan sponsors as part of its early warning and risk management programs, and to former plan sponsors as part of resolving their pension liabilities following termination of their underfunded pension plan. The PBGC selected these two areas because it believed they would provide the greatest benefit from mediation. Marcia Wagner, founder of The Wagner Law Group, answers questions about the PBGC’s Plan Sponsor Pilot Mediation Project.

Q. Why did the PBGC initiate the pilot program?

A. The PBGC indicated it had four goals for the Pilot Mediation Project: 1) to resolve disputes early; 2) to promote improved relations with stakeholders; 3) to reduce the costs of protracted negotiations and other proceedings; and 4) to make alternative dispute resolution an integral part of its dispute resolution process. The program’s premise is that mediation will accomplish each of these goals.

Q. How is eligibility for the mediation project determined?

A. The PBGC has announced that mediation will be offered to eligible plan sponsors, that may elect to proceed on a purely voluntary basis. The agency will do an initial screening to select, from among the termination liability collection and early warning programs, matters it deems eligible to include in the pilot. However, a case will generally be ineligible for the program if: 1) the plan sponsor has a minimal ability to pay; 2) a court proceeding is pending; or 3) there is a limited time within which to act and the plan sponsor has declined to sign a standstill or tolling agreement. The PBGC indicated that it averages about 100 early warning program matters per year and estimated that perhaps 15 to 20 might be eligible for the pilot program. It said there are approximately 75 termination liability cases for underfunded plans, not all of which will be eligible.

Q. How will the pilot program operate in termination liability cases?

A. In eligible termination liability cases, respondents will have 120 days to satisfy their net worth disclosure requirements under PBGC regulations. After receiving the information, the PBGC will review, verify and analyze it, and the parties may then engage in good faith negotiation. The agency has expressed that it will make mediation available within a reasonable time after completing its review and analysis of the information provided. The issue in these matters is what is affordable by the plan sponsor. While the PBGC’s objective it not to put plan sponsors out of business, negotiations in such matters can be protracted, and the agency believes mediation will facilitate their resolution.

Q. How will the plan operate in “early warning” situations?

A. In eligible early warning engagements, plan sponsors will be advised of the availability of mediation at the beginning of negotiations. Mediation will be available to plan sponsors after the PBGC receives sufficient responses to its information requests, but the timing of the contemplated transaction will determine the window for mediation. Any mediation will need to be completed before the date of the closing, with sufficient time left for the parties to document the mediated resolution or to take legal action, if warranted.

Q. Who will the mediators be?

A. The mediators will be obtained from the Federal Mediation and Conciliation Service, pursuant to an interagency agreement with the PBGC. However, the PBGC has not released a copy of the agreement, and the specific procedural rules that would apply to the mediation are not specified. To prevent any appearance of partiality, the opposing parties will split the costs.

Q. Who will participate in the mediation?

A. Members of PBGC’s case teams will participate in mediating each case. Plan sponsors are entitled to participate along with or through their representatives.

Q. How long is the pilot program scheduled to last, and how will it be evaluated?

A. The PBGC expects the program to last for one year. After that, the agency will evaluate the program’s success according to the following metrics:

• Percentage of screened cases found eligible to participate;
• Percentage of eligible cases opting for mediation;
• The resolution rate and the impact upon case inventory;
• Time to resolution;
• Cost savings vs. litigation or protracted negotiation; and
• Outside stakeholder reaction to the pilot program.

Marcia Wagner is a specialist in pension and employee benefits law and is the principal and founder of The Wagner Law Group P.C., one of the nation’s largest boutique law firms specializing in the Employee Retirement Income Security Act (ERISA), employee benefits and executive compensation. A summa cum laude and Phi Beta Kappa graduate of Cornell University and a graduate of Harvard Law School, she has practiced law for 30 years, 21 with her own firm. She is recognized as an expert in a variety of employee matters, including qualified and nonqualified retirement plans, fiduciary issues, all forms of deferred compensation, and welfare benefit arrangements.