Hostess Brands Inc. said it used wages that were supposed to help
fund employee pensions for the company's operations as it sank toward
It isn't clear how many of the Irving, Texas, company's workers were
affected by the move or how much money never wound up in their pension
plans as promised.
After the company said in August 2011 that it would stop making
pension contributions, the foregone wages weren't put toward the
pension. Nor were they restored.
The maker of Twinkies, Ho-Hos and Wonder Bread filed for bankruptcy
protection in January and shut down last month following a strike by one
of the unions representing Hostess workers. A judge is overseeing the
sale of company assets.
Gregory Rayburn, Hostess's chief executive officer, said in an
interview it is "terrible" that employee wages earmarked for the pension
were steered elsewhere by the company.
"I think it's like a lot of things in this case," he added. "It's not a good situation to have."
A spokeswoman for Hostess's previous top executive, Brian Driscoll, declined to comment.
Hostess hasn't previously acknowledged that the foregone wages went toward its operations.
The maneuver probably doesn't violate federal law because the money
Hostess failed to put into the pension didn't come directly from
employees, experts said.
"It's what lawyers call betrayal without remedy," said James P.
Baker, a partner at Baker & McKenzie LLP who specializes in employee
benefits and isn't involved in the Hostess case. "It's sad, but that
stuff does happen, unfortunately."
The decision to cease pension contributions angered many employees.
After the bankruptcy filing, Hostess tangled with the International
Brotherhood of Teamsters and the Bakery, Confectionery, Tobacco and
Grain Millers International Union to renegotiate labor contracts.
While the Teamsters union agreed in September to a compromise, resistance from the bakers union was fierce.
Halted pension contributions were a major factor in the bakers
union's refusal to make a deal with the company. After a U.S. bankruptcy
judge granted Hostess's request to impose a new contract, the union's
employees went on strike. Hostess then moved to liquidate the company.
The bakers union represented about 5,600 of the company's 18,500 employees.
"The company's cessation of making pension contributions was a
critical component of the bakers' decision" to walk off the job, said
Jeffrey Freund of Bredhoff & Kaiser PLLC, a lawyer for the union.
"If they had continued to fund the pension, I think we'd still be
working there today," said Craig Davis, a 44-year-old forklift operator
who loaded trucks with Twinkies, cupcakes and sweet rolls at an Emporia,
Kan., bakery, for nearly 22 years.
Hostess's retirees receive payments mostly from so-called
multiemployer pension plans. Such pensions get contributions from
various companies in a particular industry. Hostess's pension plans
still are making payouts to retirees.
Most companies provide pensions through single-employer plans that
they fund themselves. When companies with these plans file for
bankruptcy protection, they sometimes terminate the plans, leading the
Pension Benefit Guaranty Corp., the government agency that insures
corporate pensions, to take over the plans and make payouts to their
With the multiemployer plans from which most Hostess retirees
receive benefits, the PBGC doesn't step in unless the plans become
insolvent. If that happened, the PBGC would send roughly $12,870 for
each employee with at least 30 years of service, according to an agency
The Bakery & Confectionary Union & Industry International
Pension Fund, the largest fund covering Hostess bakers, was 72% funded
when Hostess stopped making contributions, the company said.
Teamster-represented employees at Hostess didn't contribute a
portion of their wages toward pensions, a union spokesman said. But
among workers in the bakers union, it was "standard practice," said Mr.
Rayburn, Hostess's CEO.
Hostess had 115 different collective-bargaining agreements with
employees represented by the bakers union. Each contract let those
workers choose an amount of wages to direct to the pension plan.
For example, John Jordan, a union official and former Hostess
employee, said workers at a Hostess factory in Biddeford, Maine, agreed
to plow 28 cents of their 30-cents-an-hour wage increase in November
2010 into the pension plan.
Hostess was supposed to take the additional 28 cents an hour and contribute it to the workers' pension plan.
"This local was very aggressive about saving for the future," he said.
Employees in Biddeford began directing wages toward pensions in 1955, and the amount grew to $4.28 an hour per employee.
Amounts varied by location, and it isn't clear how many unionized employee groups participated in the arrangement.
In five months before this past January's bankruptcy filing, the
company missed payments to the main baker pension fund totaling $22.1
million, Mr. Freund said.
After that, forgone pension payments added up at a rate of $3
million to $4 million a month until Hostess formally rejected its
contracts with the union. The figures include company contributions and
employee wages that were earmarked for the pension, according to Mr.
Mr. Driscoll, the former Hostess chief executive, told employees in
an August 2011 letter that the decision to "temporarily suspend" pension
contributions was a "necessary bridge" to a larger plan to turn around
In the fiscal year ended in May 2011, Hostess had a net loss of $341 million on sales of $2.5 billion.
As the company's financial condition deteriorated, "whatever cash it
had was being used to fund the business, to keep it afloat," Mr.
It might have been "impossible" to undo the agreements that called
for Hostess to make pension contributions using employee money, Mr.
Rayburn added. One reason: Hostess could have been too short of cash to
make up the difference, though he said he isn't sure.