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Hostess CEOs takes Employee Pensions

 
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    Posted: Dec 15 2012 at 7:39pm
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http://finance.yahoo.com/news/hostess-maneuver-deprived-pension-051400720.html

Hostess Maneuver Deprived Pension

The Wall Street JournalBy Julie Jargon, Rachel Feintzeig and Mike Spector | The Wall Street Journal – Mon, Dec 10, 2012 1:02 PM EST

Hostess Brands Inc. said it used wages that were supposed to help fund employee pensions for the company's operations as it sank toward bankruptcy.

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 retirees.

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 spokesman.

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. Freund.

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 Hostess.

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. Rayburn said.

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.



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Post Options Post Options   Thanks (0) Thanks(0)   Quote Sang Froid Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 7:41pm
Snack cakes dead?
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Post Options Post Options   Thanks (1) Thanks(1)   Quote EPITOME Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 7:53pm
i haven't paid much attention to this case but i do know people were trying to portray it as greedy union workers who were bent on getting their way.  well...who looks greedy now
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Post Options Post Options   Thanks (8) Thanks(8)   Quote princesshoneybee Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 7:58pm
twinkies are nasty as f*ck.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote PurplePhase Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 7:59pm
this makes me sick
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Post Options Post Options   Thanks (0) Thanks(0)   Quote ScorpioLuv Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 7:59pm
Wowwwwwwww
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Post Options Post Options   Thanks (1) Thanks(1)   Quote ms_wonderland Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 8:00pm
my mom is devastated by Hostess going out of business.  orange cupcakes are her life.


stuff like this is why those yties created that show Undercover Boss as smoke and mirrors...they dont care about their employees.
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Post Options Post Options   Thanks (3) Thanks(3)   Quote ScorpioLuv Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 8:01pm
Originally posted by princesshoneybee princesshoneybee wrote:

twinkies are nasty as f*ck.
I hate twinkies. When I first heard the news they were going out of business, I thought about all the snacks I liked, and come to find out, they were all Drake's snacks. Funny Bones, Devil Dogs, Sunny Doodles....
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Post Options Post Options   Thanks (2) Thanks(2)   Quote melikey Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 8:03pm
Meh.. most American workers do not have pensions anymore. That company was a fool paying for them when it was broke in the first place.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Babydoll9163 Quote  Post ReplyReply Direct Link To This Post Posted: Dec 15 2012 at 8:30pm
That's really messed up
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