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Keller pension: no cause for alarm

Though Keller Manufacturing’s pension plan is underfunded by $3.9 million, those enrolled in the plan should not be alarmed, CEO David Richardson said.
Keller’s plan is among some 30,000 federally insured through the Pension Benefit Guaranty Corp. Of those, about 81 percent are believed to be underfunded.
Most pension plans paid by the PBGC were transferred there after the providing company declared bankruptcy. There a payment of up to about $45,000 annually per participant is guaranteed.
‘The insurance would kick in after Keller has defaulted, if that ever were to occur. And Keller has always made all of our legal commitments to the plan: both insurance premiums and annual contributions,’ Richardson said.
The plan is itself a financial obstacle to Keller’s recovery.
Defined-benefit plans, like the pension, specify the amount of benefits the retiree will receive. This puts pressure on the employer to meet its obligation to the plan regardless of finances or market performance.
Defined-contribution plans, like the 401(k), specify how much the employer will contribute to the plan, but benefits are based on the performance of investments, transferring the risk to the employee.
‘Most old-line manufacturing industry in America has defined-benefit plans from years ago. They are shackled to those plans. This obligation is very significant. It is our biggest obligation that we have and could make it very difficult for us to survive,’ Richardson said.
Keller’s pension obligation for 2005, payable this year, $489,290.
The total value of the pension liability is $12.9 million. That’s the amount the company would need to buy its way out of the plan: annuitizing its participants so they would still receive benefits but ending the existence of the Keller-provided plan.
The fair market value of the plan is at present about $9.4 million. That leaves the deficit of $3.9 million by which the plan is underfunded. Only if that deficit is resolved will shareholders have any hope of gaining financially should the company dissolve.
‘We may decide there is a time to turn out the lights and put all the money in pensions,’ Richardson said. ‘If we do turn out the lights, there probably will be no payments to shareholders.’
Richardson stressed that he does not forsee Keller defaulting on the pension plan in the near future, if ever.
Congress created the PBGC about 30 years ago to rescue failed plans. The insurer currently is dealing with its own defecit. It doubled in the past year to $23.3 billion.