As part of an agreement with the federal government's Pension Benefit Guaranty Corporation (PBGC), beleaguered energy giant Enron Corp. has agreed to place $321 million in an escrow account in order to fully fund four defined-benefit pension plans. The money will come from proceeds of the $2.45 billion sale of the company's U.S. pipeline business. The pipeline business is considered to be Enron's most prized remaining asset.
Enron originally agreed to fund $200 million toward the balance owing in the four pension funds, but the company was pressured by the PBGC in a bankruptcy court hearing and was told that the pipeline sale would have to be delayed if agreement couldn't be reached on the pension funding. PBGC filed a notice of determination in the bankruptcy court indicating plans to terminate the four pension plans, thus ensuring that assets would have to be used to fully fund the plans before the bankruptcy could be resolved. Otherwise, the proceeds from the pipeline sale would have been grouped with other monies that are slated to be paid to Enron creditors. Enron creditors can expect to receive approximately 20 cents on the dollar for their claims.
"The procedural step PBGC is taking today is designed to ensure that enough money remains available to fully protect the pensions of Enron's workers and retirees," said PBGC executive director Bradley D. Belt in a statement last June. "Acting now preserves assets that Enron can use to pay a private insurance company to take over its pension plans, which would provide full benefits and preserve the option to receive lump-sum payments."
Giving in to the PBGC demands this week means that the pipeline sale can go forward. CCE Holdings LLC, a joint venture of Southern Union Co. and GE Commercial Finance Energy Financial Services, has agreed to purchase Enron's three natural gas pipelines for $2 billion plus a $430 million assumption of debt. It is expected that the deal will close before the end of 2004.
The pensions that will be funded are the Enron Corp. Cash Balance Plan, Garden State Paper Pension Plan, Enron Financial Services Pension Plan, and San Juan Gas Company Pension Plan. There are approximately 17,000 current and former employees who are participants in the four pension plans. The agreement to fund pension plans does not affect the company's 401(k) plans or stock option plans.