Senate Panel Probes 1st Executive’s ‘Junk Pensions’

The Senate subcommittee on labor said Thursday that it has opened an investigation into what it terms “junk pensions” offered by the Los Angeles-based insurance holding company First Executive Corp.

In a statement, Sen. Howard Metzenbaum (D.-Ohio), the subcommittee’s chairman, noted that a number of large companies had replaced their pension plans with annuities from the Executive Life insurance units of First Executive. Metzenbaum noted that a large portion of the insurance companies’ invested assets are in high-yield, high-risk junk bonds and that rating agencies recently lowered their ratings of the units’ ability to pay claims. First Executive has also said it will take a $515-million charge for its 1989 fourth quarter because of the plunging value of its junk bond investments.

Metzenbaum said the developments raised questions about the First Executive units’ ability to pay benefits, including pensions. The firm, however, has said it has more than $2.5 billion in cash on hand, ample reserves for losses and isn’t in any danger of defaulting on its obligations.

The subcommittee said it will hold hearings into Coleman Co.’s purchase of pension benefits from First Executive after investor Ronald O. Perelman acquired Coleman earlier this year.

The Wichita, Kan., firm manufactures Coleman lanterns and other camping products. Metzenbaum said in the statement that “I am concerned about the pensions of the thousands of workers at Coleman Lantern and dozens of other companies which we understand have pension contracts with Executive Life.”

A spokesman for Perelman couldn’t immediately be reached for comment.

A congressional source said the company was examining transactions in which the investment firm Drexel Burnham Lambert Inc. financed leveraged buyouts or hostile takeovers of companies and helped bring in First Executive to write annuities after the new owners canceled the existing pension plans.

Fred Carr, First Executive’s chairman and chief executive, had a close business relationship with Drexel’s former junk bond chief, Michael Milken, currently under indictment on racketeering charges.

The subcommittee’s statement said that “because of its reliance on junk bonds, Executive has been able to offer corporate raiders annuities at very low prices.” It noted that Coleman workers have expressed concern about the safety of the annuities.

Allan L. Chapman, vice president of First Executive, said he wasn’t aware of the Senate investigation and declined to comment on the concerns expressed in the subcommittee’s statement.