Tuesday, February 14, 2012

Pension plans: "plus ça change, plus c'est la même chose"

Within a post in 2012 at finance.yahoo titled Signs Your Pension Plan Is in Trouble , one finds the text:

Similarly, if your company spins off or sells your division, plan for the worst. Many companies spin off underperforming divisions, loading them up with retirees but without adequate assets to pay their promised benefits. Most retirees of Delphi, General Motors's auto-parts spinoff, lost between 20% and 40% of their pensions when their plan was terminated in bankruptcy.

In the legal literature from 1996 [ James B. Shein, 24 Pepp. L. Rev. 1 ], one can find the text:

The strategy "amounted to placing many of Varity's money-losing eggs in one financially rickety basket." n129 Because Varity transferred only its money-losing divisions and various other debts into the new subsidiary [MCC], any failure of the new MCC would not cause the bankruptcy of Varity. n130 The failure of MCC would, however, eliminate Varity's worst performing businesses and also eradicate debts that Varity's more profitable divisions would otherwise be obligated to pay. n131

Most significantly, Varity also transferred about 1500 employees from Massey-Ferguson and other poorly performing units to MCC, along with almost 4000 retirees from various parts of Varity's corporate family. n132 Varity "hoped the reorganization would eliminate obligations . . . arising from the Massey-Ferguson benefit plan's promises to pay medical and other nonpension benefits to employees of Massey-Ferguson's money-losing divisions." n133 While Varity retained the right to terminate complete benefit plans of all employees, the restructuring allowed them to specifically terminate only the benefits of the employees of the poorly performing divisions and other MCC transferees. n134

Varity encouraged its employees to accept the changes in their benefit plans through special meetings at which employees were told that their benefits could stay secure if they transferred to the MCC plan voluntarily. n135 About 1500 employees accepted. n136 Varity also unilaterally assigned the 4000 retirees' benefit obligations to the new company without informing the retirees of the completed transfer. n137

MCC operated at an $ 88 million loss during its first year n138 and soon accumulated debt of almost $ 400 million. n139 Eventually, MCC failed and went into receivership, ceasing operations and terminating all benefits to the employees and retirees. n140 The employees and retirees filed suit for reinstatement of benefits, including pensions and disability pay. n141 They sought the benefits to which they would have been entitled under the previous benefit plan had they not been transferred to the failed MCC. n142


Post a Comment

<< Home