Yellow’s $6.5 Billion Pension Loss Marks Victory for PBGC Power

Yellow Corp.'s failed bid to slash around $6.5 billion in pension withdrawal liabilities is a significant win for one federal regulator, even as the underlying legal issue is up for a possible revisit by the Trump administration and other courts.

The bankrupt trucking company lost an appeal Tuesday in the US Court of Appeals for the Third Circuit over the liability calculation method used for pension plans that received special financial assistance under the 2021 American Rescue Plan Act. The liability has been a central dispute in Yellow’s bankruptcy for the past two years.

Employers that exit a union pension plan must pay their share of unfunded vested benefits, known as withdrawal liability. When the government’s private-sector pension insurer finalized rules for administering bailout funds, regulators adopted a phased-in approach preventing employers from immediately using the cash infusion to shrink their share of unfunded costs.

Yellow and its largest shareholder, MFN Partners LP, argued that the calculations were flawed because they excluded SFA funds. They also challenged Pension Benefit Guaranty Corp. authority to exclude such funds from the calculation, suggesting agency rules were arbitrary.

The Supreme Court’s 2024 Loper Bright decision, which ended four decades of judicial deference to agency rulemaking, opens the door to new challenges to federal regulations. The Third Circuit opinion, upholding the PBGC’s authority, could invite scrutiny of the agency and set up a potential bid for a Supreme Court reversal.

“What they did was perfectly within their authority, even in a post-Loper Bright world,” said Michael Scott, executive director at the National Coordinating Committee for Multiemployer Plans. “What’s different here is that the PBGC’s authorizing statute gave them the ability to fill in blanks around withdrawal liability.”

After Yellow filed for bankruptcy and shut down in 2023, it tried to substantially reduce its liability after withdrawing from pension plans that received SFA funds. Eleven multiemployer pension plans filed 174 proofs of claim in the bankruptcy, seeking a combined $6.5 billion in withdrawal liability.

“It was a gamble to get around the basic fact that federal funds are not part of the bankruptcy estate,” said Alvin Velázquez, an Indiana University Maurer School of Law professor who writes about labor and bankruptcy. “If I were Yellow, I would think about appealing this to the Supreme Court, because it has been taking a dim view of agencies exercising their authority.”

But in the absence of a circuit split on the issue, a challenge “seems unlikely,” said Israel Goldowitz from the Wagner Law Group.

Yellow attorneys didn’t respond to comment requests. The PBGC declined to comment.

Tone Change

The PBGC said that since SFA funds don’t originate from employer contributions, employers shouldn’t be able to use them to facilitate a cheap exit.

That funding, which is expected to cost upward of $91 billion to save roughly 200 plans, is reserved for pension participants and beneficiaries and can’t be fully realized in withdrawal liability calculations until it’s entirely exhausted, which may not happen until 2051.

Withdrawal liability depends on the value of plan assets versus benefit obligations. How those assets are recognized can have “an enormous effect,” Goldowitz said.

“If Congress had intended for employers to benefit from SFA, PBGC would have had to eliminate the assumption that plans would keep receiving employer contributions and withdrawal liability payments through 2051,” Scott noted. “Otherwise, employers would be incentivized to walk away the moment their plan was fully funded.”

Employers that balked at the Biden-era funding rule are hopeful that the Trump administration will implement changes to the use of bailout money when calculating withdrawal liability.

The Trump administration has signaled possible “technical” amendments that would make “corrections, clarifications, and improvements” to the restrictions and conditions.

Changing the withdrawal liability assumptions now would mean the SFA that’s been allocated to plans would be significantly less than what’s necessary to pay benefits through 2051, Scott said. Changes would require more taxpayer money and result in plans with less funding for retirees and the remaining employees, he added.

GOP lawmakers were skeptical of the bailout when it passed, but even with a Republican president in office, political pressure may not be enough to convince regulators to destabilize the plans that were narrowly rescued, said Michael McNally, a Fox Rothschild partner.

Withdrawal liability isn’t the only factor supporting the multiemployer pension system, but tiny fractional changes in withdrawal liability interest rates can swing the exit price by millions.

“If an employer goes out of business or sells its operations, it can be financially devastating, as the Yellow case illustrates so plainly,” McNally said. “The noteholders here had these visions that they would craft some legal arguments that would allow them to have some sort of better recovery than they’re going to get.”

Bargained Deal

Judge Thomas Ambro wrote that Yellow offered “no good reason” why the Third Circuit shouldn’t “enforce its own contract against it.”

Lawyers for pension groups contended that Yellow breached a deal made more than a decade before the bankruptcy. It would lower its contributions in exchange for conditions that protected the funds—including that future withdrawal liability remain unaffected.

Yellow “bargained for a discount on its contributions by offering to pay full freight on its withdrawal liability if the time came,” Ambro wrote. “It is here.”

The ruling comes as Yellow seeks court approval of its bankruptcy plan in November.

Since filing, Yellow has terminated around 30,000 employees—one of the largest mass layoffs in recent history—and has been selling off assets.

An issue for the bankrupt company is whether there’s any residual equity left for stockholders, Goldowitz said. “That’s what is at stake for the creditors committee and stockholders.”

Withdrawal liability issues with SFA funds are uncommon in bankruptcy, especially in the private sector, Velázquez said.

“If you’re in a counsel trying to bring money into the bankruptcy estate, what’s the collateral attack?” he said. “You attack the agency and its rulemaking authority.”

The case is In re Yellow Corp., 3d Cir., No. 25-1421, opinion 9/16/25.