Compliance June 21, 2024

PBGC Issues More Than $5B in SFA Grants in One Week

The multiemployer pension funds cover about 200,000 participants.

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The Pension Benefit Guaranty Corporation issued five special financial assistance grants this week, totaling approximately $5.8 billion. The grants will protect the pensions of approximately 200,000 participants.

The largest plan receiving SFA aid was the Bakery and Confectionery Union and Industry International Pension Fund, which received $3.4 billion on Friday. The Kensington, Maryland-based plan covers 103,056 participants in the bakery, tobacco, and grain milling industries. The plan was expected to become insolvent by 2030 when a 45% benefit cut would have been implemented.

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A recent Form 5500 for the Bakery and Confectionary Pension was not available. But according to a funding notice, the plan was 47% funded in 2023.

The second largest grant was for $1.2 billion, and was awarded to the United Food and Commercial Workers Unions and Employers Midwest Pension Plan. The Rosemont, Illinois-based plan covered 35,223 in the food service industry and was expected to become insolvent in 2029, when it would have had to issue a 20% benefit cut. A recent Form 5500 was not available for UFCW Midwest.

The third plan was the Graphic Communications International Union-Employer Retirement Benefit Plan. The Seattle, Washington-based plan received $913.5 million and covers 40,373 in the printing industry. The plan was expected to become insolvent in 2033, when it would have had to issue a 20% benefit cut.

According to the fund’s Form 5500 from the end of 2022, the plan had 1,387 active participants, 19,382 retired, 14,688 entitled to benefits in the future, and 3,927 beneficiaries of deceased participants. The plan was 38.87% funded.

The Retail, Wholesale and Department Store International Union and Industry Pension Plan, a pension fund based in Birmingham, Alabama, received a grant worth $261 million. The plan covers 21,079 participants in the food processing, retail and manufacturing industries.

According to the plan’s Form 5500 from the end of 2022, it had 1,611 active participants, 7,212 retired, 10,949 entitled to benefits in the future, and 1,307 beneficiaries of deceased participants. The plan was 65.3% funded.

The last plan to receive a grant this week, was the Pacific Coast Shipyards Pension Plan, which received $18.9 million. The Pleasanton, California-based plan covers 507 participants in the maritime construction industry. The plan was expected to become insolvent in 2032, when it would have had to issue a 35% benefit cut.

According to the plan’s Form 5500 from the end of 2022, it had 132 active participants, 50 retired, and 2 entitled to benefits in the future. The form did not disclose a funding level.

The SFA provision of the American Rescue Plan Act of 2021 allows for PBGC funding for severely underfunded multiemployer pension plans. Grants are calculated to ensure plan solvency through 2051.

Pension funds that receive assistance must monitor the interest resulting from the grant money as separate from other sources of funding. The PBGC requires that at least two-thirds of the money it provides be invested in “high-quality fixed income investments.” The Final Rule on Special Financial Assistance, issued in July 2022, states that the other third can be invested in “return-seeking investments,” such as stocks and stock funds.

Compliance June 21, 2024

Judge Denies American Airlines’ Bid for Summary Judgment in ESG Lawsuit

The trial is confirmed to begin Monday, June 24, in Texas federal court.

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American Airlines’ efforts to prevent a trial—starting Monday—against its offering of environmental, social and governance-focused investment options in its 401(k) plan were extinguished in federal court this week.

Federal District Judge Reed O’Connor in a June 20 opinion denied American Airlines Inc.’s eleventh-hour request for summary judgment in a class action-certified lawsuit, alleging the airline’s 401(k) plan sacrificed investment performance by including investments that utilized ESG factors.

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The trial in the case, Spence v. American Airlines Inc, et al., is now slated to convene at the U.S. District Court for the Northern District of Texas, in Fort Worth on Monday morning.

The court denied American Airlines’ motion for summary judgment “in its entirety,” O’Connor wrote. The legal standard to survive summary judgment is a complainant must provide evidence from which a factfinder could conclude that the accused breached their duty of prudence, wrote O’Connor.

“The summary judgment record makes clear that a factfinder could find defendants breached their duty of prudence by failing to monitor investment managers and failing to address the facts and circumstances of ESG proxy voting and shareholder activism present within the Plan,” he wrote.

O’Connor disagreed with American Airlines Employee Benefits Committee’s arguments. The court determined genuine material disputes remain to be decided at trial.

“Each of these fact disputes speaks to the fundamental question of whether defendants acted reasonably or unreasonably with respect to their fiduciary duties of prudence and monitoring,” O’Connor wrote. “Taken together, the court finds that defendants failed to carry their burden at the summary judgment stage to show that no reasonable factfinder could find in their favor as to the breach of prudence.”

The class action complaint was brought by a former pilot in June 2023. Complainant Bryan Spence alleged the airline’s 401(k) plan sacrificed performance for ESG factors.

Earlier this month O’Connor issued an order, setting the trial date, following the entry by attorneys for each side of pretrial materials, including witnesses that each expects to testify.

Attorneys for Spence anticipate calling at trial seven probable witnesses, including Spence himself and one expert witness attorney, litigation consultant and J.B. Heaton, operator of the law firm One Hat Research LLC. Attorneys for American Airlines expect to call four probable witnesses including Spence, two possible witnesses, three expert witnesses and one records custodian.

Heaton independently published a book called “ESGBS: The False Narrative of Environmental, Social & Governance Investing,” criticizing ESG investing, in 2023.

Neither the attorneys for the plaintiff nor the counsel for the defendants responded to requests for comment. Representatives for American Airlines declined to comment.

The plaintiff is represented by Hacker Stephens LLP and Sharp Law LLP; the defendant is represented by partner Russell Cawyer and attorneys with the law offices of Kelly Hart & Hallman LLP and O’Melveny & Myers LLP.

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