UPDATE 2-Reader's Digest UK unit files for administration

* Cites UK regulator's decision on pension deal

* Says unable to meet pension obligations without the deal

* Says U.S. entity to exit Chapter 11 "promptly"

* UK pensions regulator says considering use of its powers (Recasts, adds comments from UK pensions regulator, background, byline and dateline)

By Santosh Nadgir and Clara Ferreira-Marques

BANGALORE/LONDON, Feb 17 (Reuters) - Reader's Digest Association Inc [RPPLER.UL] said on Wednesday its UK unit has filed for administration, two weeks after Britain's pensions regulator refused to approve a pension fund agreement related to the subsidiary.

The magazines publisher said it was financially unable to meet pension obligations and sustain its operations without the pension fund agreement.

The pensions regulator confirmed that it had received an official notice of insolvency and said it was "sorry" to learn that the directors of Readers Digest had sought the appointment of administrators.

The Pension Protection Fund (PPF) will now look at whether or not the Readers Digest pension scheme is eligible for entry into the PPF assessment period, the regulator said.

"We had hoped that an alternative solution could be found for the pension fund but this was not possible. The regulator is now considering its next steps including use of its powers," it said in an email to Reuters.

Reader's Digest Association Ltd, the British entity, had reached a deal with the trustees of its pension plan and the British Pension Protection Fund to resolve its pension fund deficit.

The agreement was contingent on approval from Britain's pensions regulator, which said earlier this month that it will not approve the deal. [ID:nN01151303]

RDA UK was required to pay $7.4 million in pension obligations annually, but did not generate enough free cash flow to make the payments, Reader's Digest said in court documents earlier this month."

To help avoid a liquidation of the British subsidiary, Reader's Digest had proposed a one-time payment of about $17.6 million and agreed to issue 33 percent of the equity of its British entity, subject to a five-year call-back option to buy back the equity for about $3 million.

"In light of the recent action taken by RDA UK to file for administration, parent RDA expects to emerge from Chapter 11 promptly," the company said in a statement.

On Jan. 15, a New York bankruptcy court approved the company's reorganization plan, clearing the way for the publishing company to emerge from bankruptcy. The court approval enables Reader's Digest to choose its date for emergence.

Reader's Digest said it did not expect the UK administration to have a material impact on its financial performance.

The 87-year-old publisher of 50 editions of Reader's Digest and other magazines, filed a prearranged bankruptcy in August 2009.

The case is In Re: Reader's Digest Association Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-23259. (Reporting by Santosh Nadgir; Editing by Gopakumar Warrier)