Hostess Bankruptcy Exposes Peril to 10 Million U.S. Pensions

Hostess Snack Cakes
Associated Press/Brennan Linsley
By Lorraine Woellert

When Hostess Brands went bankrupt in 2012, it triggered anxiety among employees at Ottenberg's Bakery, a family-owned enterprise in Maryland. The companies shared a pension plan, and if Hostess couldn't pay its retirees, Ottenberg's would have to pick up the tab.

Gary League, 53, who has delivered Ottenberg's bread for almost three decades, worried he might lose his nest egg, maybe even his job. "If you have all these guys out on retirement and you only have Ottenberg's paying into it, the math doesn't add up," he said. "I was thinking I would have to work forever."

Last week, he got the good news -- the U.S. government saved his benefits by sacrificing those of Hostess' drivers, who will now get a reduced payout financed by the government. League is one of 10.4 million Americans with retirements tied to multiemployer pension plans, large investment pools long considered low risk because they don't rely on a single company for financing. Two recessions, industry consolidation prompted by deregulation and an aging workforce have funds facing a $400 billion shortfall that has some near insolvency. Dozens already have failed, affecting 94,000 participants.

Things are dire enough that a coalition of employers and labor unions is asking Congress for permission to cut benefits to retired truck drivers, miners and others as a last resort in order to prevent plans from going under. The proposal has divided unions and their allies, triggering a lobbying battle as a legislative deadline approaches and retirement security looms large as a growing economic concern.

$2 Billion LIability Leads to Plan Being Carved up

Hostess, maker of Wonder Bread and Twinkies, was one of two employers contributing to the Bakery and Sales Drivers Local 33 Pension Fund. When Hostess went bankrupt, Ottenberg's was left to foot the bill. President Ray Ottenberg didn't respond to requests for comment.

Hostess had about $2 billion in liability to its multiemployer plans. Because of the bankruptcy, those pensions will get nothing from the company, said David Rush, chief financial officer of the Hostess estate, known as Old HB. "You have to repay your secured creditors first," he said. "It was an unfortunate situation."

The Obama administration acted last month, taking 342 Hostess truck drivers out of the plan to rescue benefits for League and about 360 others. It was the third time in its 40-year history that the Pension Benefit Guaranty Corp. had carved up a fund. The PBGC engineered a merger of Ottenberg pensions into another plan. Since 2005, the agency has paid about $722 million to people in similar failed plans.

A coalition of 40 labor and employer groups, including Bechtel Group, United Parcel Service (UPS) and -- at the time -- the International Brotherhood of Teamsters last year said pension trustees should be allowed to cut benefits to current retirees. The once-unthinkable idea is now gaining support as funds falter and unemployment, student debt and longer life spans leave people less financially prepared for retirement.

"It's the first attempt by an industry or a sector of the economy to really address what's going to come back and bite us as a country," said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans in Washington and an author of its "Solutions Not Bailouts" report. "If you allow some of these plans to have flexibility, they can take action instead of waiting until the assets are depleted."

Slippery Slope for Plans, Federal Agency

Others disagree. Giving pensions that option would make the problem worse, and not just for retirees, said Teresa Ghilarducci, an economist at the New School for Social Research in New York. Multiemployer payments are low and concentrated in economically distressed regions, including the industrial Midwest, she said.

Once some pensions get the flexibility to cut benefits, others will want it, too, she said. It's a slippery slope that could lead to changes at single-employer pensions, which have 30.4 million participants. "It's bad for households, but it's also bad for the economy," Ghilarducci said. "In some of these communities, it's the retirees that are the mainstay."

The PBGC, created in 1974, is on uneasy financial footing itself. The agency charges companies in multiemployer plans an annual insurance premium of $12 per plan participant, less than one-fourth of what other pension plans pay. The agency projects 173 multiemployer plans will exhaust assets, costing it an estimated $10 billion and leading to the insurance program's insolvency in 10 to 15 years. The agency is asking Congress for an increase in insurance premiums and more ability to intervene before funds are insolvent.

Although the Hostess partition will cost the agency an estimated $22.5 million, it could ultimately save money because the entire pension plan likely would have failed without it, PBGC Director Joshua Gotbaum said.

The agency partitioned its first pension in 1983 to save benefits for restaurant workers and manufacturers in and around Detroit. In 2010, it split a Chicago plan, protecting 3,700 truckers and putting 1,500 on government payouts. Now it's weighing carving up a second Hostess-related fund.
"After we announced the Hostess partition we got calls from folks in other plans saying what about us?" Gotbaum said. "If we had a lot more money, we could do a lot more plans."

Support for 'Solutions Not Bailouts'

The nation's second-largest multiemployer fund, the Central States Southeast and Southwest Areas Health and Welfare Pension Funds, is also among the most troubled, with five retirees for every active employee. Covering 410,000 truck drivers, sanitation workers and others, the Teamsters plan paid out $2.1 billion more than it took in in 2012, with the average retiree receiving $15,000. In 2006, Congress passed the Pension Protection Act, giving funds such as Central States temporary leeway to cope with shortfalls. The law expires at the end of this year, and congressional lawmakers have no plans to renew it.

Central States is one reason unions, including the Teamsters, lined up behind "Solutions Not Bailouts" last year. James P. Hoffa, then Teamsters president started hearing from his rank-and-file. He retreated in October, calling the proposal he helped craft a "mad rush to destroy what little semblance of retirement security exists in this country." "This issue is about basic economic fairness," Hoffa wrote in an Oct. 28 letter to House lawmakers. He called on labor unions to "ensure that the right to a dignified retirement remains sacrosanct." Hoffa spokesman Galen Munroe declined requests for comment.

Cutting retirement income would be "a ticket to poverty," for some, said Bruce Olsson, a lobbyist with the International Association of Machinists, which has aligned with the Teamsters. "It puts the burden on people that are the most vulnerable. Retirees don't have the ability to make up that lost income."

The last time Congress tried to rescue unfunded pensions, the move was attacked as a union bailout and failed, said former Representative Earl Pomeroy, a North Dakota Democrat who now advises the employer-labor coalition. Absent congressional action, more companies will abandon their obligations and leave retirees dependent on government aid, he said."You've got the hole getting bigger and bigger," Pomeroy said. "A haircut now beats a beheading later."

Trustees at distressed funds can do only so much because the law dictates what benefits they can and can't cut. Had they been able to reduce accruals to retirees, they may have been able to save the Millwrights & Machinery Erectors Local Union No. 1545 Pension Fund.

Stories of Two Men With Lower Benefits

Peter Scarmozzi, a retired millwright living in Bear, Del., is among those willing to sacrifice. Scarmozzi, 66, is one of 179,000 participants in the millwrights' fund, about half of whom are retired. While the plan had suffered shortfalls before 2008, after the financial collapse, trustees calculated it would cost $23 per hour worked to restore it to health, up from less than $15. Some employers, including General Electric Co., want out and are now in court. "For 10 years we petitioned the trustees to cut the benefits back so the fund would survive," Scarmozzi said. "Now, it's going to fail."

Kent Cprek, a lawyer for the Local 1545 fund, said trustees reduced what benefits the law allowed. Pension payments to existing retirees are off limits. "You're not allowed to cut every benefit," said Cprek, a shareholder at Jennings Sigmond in Philadelphia.

Sacrificing part of Scarmozzi's pension a decade ago may have helped him and preserved benefits for younger millwrights today, including Thomas Hall, 55. Hall, who has installed turbines, generators and other large equipment for 33 years, began preparing for the worst in 2008. He and his wife cut spending and abandoned work on their unfinished house in North East, Md.

Now the millwright fund could be insolvent as soon as next month, Scarmozzi said, and his $3,600 monthly pension will be replaced by an $800 check from the PBGC. "If I could find a part-time job, I'd take it," Scarmozzi said. "There's no golden years -- that stuff's gone."

Hall said he will get $980 a month from the agency instead of his $4,000 pension. He's accrued another $226 so far from a separate fund he joined four years ago. "How healthy will that pension fund I'm contributing to now be in 10 years?" Hall said. "I'm stuck in a bad storm."

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abourge458

Thank goodness I found in some catalogs,.... ( Around 29.95) <<< Make your own Twinkies grills
I LOVE the ones I made with applesauce filling. Why didn't Hostess think of THAT!.

February 27 2014 at 5:06 PM Report abuse rate up rate down Reply
Doc

What caused this problem? This problem that seem to be so systemic in our country today. It reaches from the smallest shopkeeper to the top rung of government. Deregulation caused this. It's a fancy word isn't it, Deregulation? It conjours up images of people being set free from feters and chains. What a wonderful thing, freedom. Most of you voted for it or for the people who were for it. It sounded so good, didn't it? But, what was it really? The regulations were laws. Laws put in place to protect you. Laws to keep people from stealing your money. Laws to make your food safe to eat and your water safe to drink. Laws to keep equity in business transactions. Laws to keep your Thrift guarded. Laws that a much finer legislature than we have today put in place at great political risk to themselves. Deregulation means it's no longer unlawful to steal. It's the American people who need to re-think their position. When someone wants something stop asking what's in it for me, and start thinking about what can I lose or how can this be turned against me. One more thing. Stop voting for the interests of the rich just because you hope to become rich one day. If you vote for your own interests instead you might actually get there.

February 27 2014 at 3:37 PM Report abuse +1 rate up rate down Reply
lnlrp

I testified before a congressional panel in Arlington Texas prior to passage of ERISA. What is happening now was fore seen by many professionals at that time. Wait till city, county, state and federal pension funds can no longer fund their pension plans. All of this was discussed and no action was taken by Congresss. I am dumb founded that congress, city, couny and state officals are acting like this is the first time they have heard about this. This short fall was discussed 40 years ago and it fell on deaf ears. One last thing. It was congress who raided the Social Security Trust Funds and now the participants are paying the price. Once again solvent programs were undermined by politics. Want a scare, write your State Comptoller and ask them what the unfunded liability is for your particular state pesion fund is today.

February 27 2014 at 2:18 PM Report abuse +1 rate up rate down Reply
CreativeKimberly

I have 2 words. Unions Suck! All I did was pay damn union dues and than when I needed help with a grievance they were no where to be found! Ever since I totally hate unions! and to the azz who said "It's all Bush's fault" Get a grip! I thought the same thing until OBUMMER got in the first time. Just wait until he jacks up the country some more with his Obama care crap that the rest of us have to pay for just so his lazy azz homies can have insurance!

February 27 2014 at 1:35 PM Report abuse rate up rate down Reply
2 replies to CreativeKimberly's comment
jtdancernh

Ummm...did you ever consider the possibility that the union was "nowhere to be found" because your grievance had no merit? I'm guessing the union wouldn't waste its time and money fighting a baseless claim.

As for Obamacare, why are you b!tching about the money being spent on health coverage for uninsured/underinsured Americans? When uninsured people end up in the emergency room without insurance, guess who picks up the bill? THE REST OF US.

And just out of curiosity, did you also b!tch when Bush started two wars without ANY clue as to how to pay for them? He gave all of his fatcat friends huge tax breaks that they neither needed nor deserved at a time when we were spending $20 billion a month on the Little War for Big Oil, a war which was illegal, unjust and unnecessary.

And all of those injured, maimed and disabled troops Bush created came home needing lifelong medical care, and since the Republicans LOVE cutting funding for veterans benefits while screaming at THE REST OF US to "support the troops," how exactly do you think they'll get that medical care? Or are you like most Conservative Republicans, who would rather see our troops DIE over there than have to pay for a lifetime of medical care if they have the AUDACITY to survive and come home, who b!tch and complain when the survivors who DO come home have the UNMITIGATED GALL to actually expect the government to hold up ITS end of the bargain?

Just wait--if they have their way, before the Republicans are done, you may very well be getting YOUR medical care covered under the ACA, and you'll be thanking your luckky stars that its available.

February 27 2014 at 2:29 PM Report abuse +2 rate up rate down Reply
hsenpfeffer

Your steward worked with you and explained that he saved your job. When you are drunk at work you are lucky the union was able to save you and that you got off with only a suspension. It is idiots like you that give both the supervisors and union steward grey hairs.

February 27 2014 at 3:12 PM Report abuse rate up rate down Reply
mboater1

ddunlap555... The only reason you were able to work for that company for 10 years just under the standard scale is Because of the UNIONS.. they set the standards.. set the bar.. trust me if your previous Non-Union company would of been able to hire guys at far less then they paid you.. THEY WOULD OF.. do you think they paid that just under the standard scale because they liked you ? Dont fool yourself.. speaking of just under the standard scale. .what is taht all about ? How come you were not paid at Standard Scale ? maybe had you been in a Union you might of been ? Also you speak in the past tense.. you no longer work there ? what happen did the company get rid of you -- because you were a AT WILL employee.. and hired some one in at lessor rate ? Again if you been in a Union that would not happen.. .. And your final statement is you work at a place where you are in a Union but openly against .. well ddunlap555 I say QUIT give that job to some one who appreciate working there and the Union. You know whats wrong with the industry ? its Greedy CEOs Executives.. making millions of dollars.. its Greedy
Wall Street guys who could care less about the company or employees Only to sifton off millions when they buy/ sell/ split/ merge/ & close up companies.. That is the Problems with Industry today.

February 27 2014 at 1:28 PM Report abuse +2 rate up rate down Reply
iagreg

Unions - moochers electing looters to extort from producers

February 27 2014 at 1:03 PM Report abuse -2 rate up rate down Reply
1 reply to iagreg's comment
hsenpfeffer

The union people are the ones doing the work. The problem is salestrash and marketeering trash like you who drive up the price of everything for spending your days drunk on the golf course, telling lies, slapping each other on the back and whining about lazy union guys.

February 27 2014 at 3:25 PM Report abuse +1 rate up rate down Reply
David Gibson

They carved out the Truck Drivers from the penison fund! Sounds about right! Drivers always get the short end of the stick.

February 27 2014 at 12:38 PM Report abuse rate up rate down Reply
hislonv

Bottom line is that the pension money should be in a separate and untouchable for "other uses" account. Invested? Yes. By an investment company. Used to buy other companies? NEVER!
The pensions need to sustain themselves. The workers earned and contributed to them expecting a certain level of payout. That amount needs to be reasonable and obtainable by the pension fund. Not sustained by current contributions. Then when a company like Hostess goes bankrupt the pension fund will still be able to pay out each month to the retired employees who earned and expect that money each month to live on.
There are lots of problems with pensions, unions and non-union workplaces. This one seems to have a simple solution, but businesses and probably unions will balk at the correct solution because it will take money out of their pockets to "play" with in the business world and leave it to the financial experts.

February 27 2014 at 12:22 PM Report abuse +1 rate up rate down Reply
mmcdona484

The biggest problem with retirement benefits is that when the company owns these then you are at the mercy of what the company does with them. My wife had her pension for over 10 years in state of Kansas pensions. Problem state of Kansas made bad investments and she lost 1/2 of her pension. We took the money out of the state and went with a wiser investment firm and was able to eventually recover most of what we lost. Just think what we would have had if we had done this sooner. Investing in 401k is the best option I have seen. You choose how the investment is made and company and employee put money in. When you leave the company remove it to your own advisor. Companies and Unions have worked out complicated retirements at a time when people were expected to live to 70. Unfortunately no one had the foresight to see that spouses and employees would live until their 80's and 90's. This has increased payouts 300% an expense not budgeted or planned for. Putting the money in your hands leaves an inheritance for your children. Pensions just stop when the employee dies. This was my problem with the GM bailout pensions were protected for GM but those investors on retirement that had stock in GM lost all of their GM investment. The government chose one retiree over the other instead of allowing this company to properly restructure through bankruptcy. Depending on a lifetime of retirement from any company is a gamble that does not always pay off. However having the funds in your own hands with a good advisor gives you the chance to control your future. Diversify your investments, if one company goes bad then you have several others to protect your investments. Pensions is like investing all of your money in one company.

February 27 2014 at 11:53 AM Report abuse +1 rate up rate down Reply
ruthsgardens

There are only a few people here that got it right.The only thing between you and minimum wage is Unions.If there were no unions,there would be no reason for a company to pay workers more than minimum wage.Especially when all companies begin doing it.The rise of Corporate America and big banks began when the Railroad,Steel Industries,Coal industries,Logging industries began stretching out across america.All american workers were treated as slaves workers.Whether you lived or died that day was no matter.You either got paid or replaced.Unions were necessary then.And are needed now more than ever.As corporate america has expandedacross the world.Also the big banks have grown and a creation of centralized banks has occured.Most union and non-union members have their pensions held by the company.That is where the problem lies.And the laws that govern it to.We witnessed the rape of Steelworkers and their pensions in 2005.This money should be held in trustsand not be included as a companies assets.It should not be accessible to anyone except the beneficiaries.The same goes for Social Security and should not be allowed to be borrowed against or used as collateral.Congress passing a couple simple laws can stop this.The culprit here is credit.Institutions utilizing other peoples money like banks,hedge funds etc. should not be allowed to borrow more money than what is owed to employees,pensions,benefitsor account holders accounts including interests.Upon bankruptcy,the real money should be payed back first to employees and account holders.Then secured creditors second.

February 27 2014 at 10:39 AM Report abuse +1 rate up rate down Reply
2 replies to ruthsgardens's comment
ddunlap555

Your Union theory isnt all true. I worked for a non union company for 10 years and my salary was just under the standard scale for the ret of the industry. Raises came regulary. Im union now only cause I have to be working my present job. I am openly against unions and believe that they are a large part of whats wrong with industry.

February 27 2014 at 12:01 PM Report abuse +1 rate up rate down Reply
1 reply to ddunlap555's comment
Doc

I'm afraid it's your theory that doesn't hold water. If you worked for just under union scale, that means there was already a union in place setting the bar for that industry or business. Now if your were, say, over seventy and could actually remember a time before unions than you could express a valid opinion as to whether or not you were better off before the unions started, but everyone younger than that have all road the coat tails of union workers for their wages and benefits.

February 27 2014 at 4:07 PM Report abuse rate up rate down
iagreg

The only things a union does nowadays is to keep underperforming employees on the payroll at wages higher than their job/skill level warrants. Ridiculous benefits/pensions that can't be supported long term in most cases. The union movement was started by a socialist prior to OSHA and there was a need for a safer workplace. They are the ruination of industry in this country and need to be done away with.

February 27 2014 at 1:01 PM Report abuse -2 rate up rate down Reply