Underfunded Pension Liability: Lenders and Buyers Beware

My firm has recently issued a memorandum entitled “Underfunded Pension Liability: Lenders and Buyers Beware,” which considers the risks posed by underfunded defined benefit pension plans to sponsors and acquirers of and lenders to companies with such plans. These risks have been heightened by the current market downturn, low interests rates and the impact of the Pension Protection Act of 2006. Moreover, although the new FASB Statement No. 158 requires a company to recognize the underfunded status of defined benefit plans as a liability on its balance sheet and to recognize changes in that funded status in the year such changes occur, the ultimate liability is still uncertain. The company’s consolidated balance sheet and the footnotes to its financials provide certain historical information based on assumptions made as of the date of such statements and do not have sufficient detail to make an exact determination as to the company’s potential liability. The memo outlines in detail the risks facing sponsors, acquirers and lenders, the new pension rules and outlines strategies to avoid pension plan issues in the current market.

The memorandum is available here.