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Pension Agency Powers Upheld : Retirees: High court averts potential billion-dollar crisis. Regulators can force corporations to fund plans.

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TIMES STAFF WRITER

The Supreme Court ruled Monday that a corporation in bankruptcy can be forced to keep funding its pension plans, heading off a potential multibillion-dollar crisis for the federal agency that insures pensions for nearly 40 million Americans.

The 8-1 decision strengthens the powers of the federal Pension Benefit Guaranty Corp., which argued that it faced a crushing burden similar to that experienced by the federal agency that insures savings and loan deposits.

The pension agency was created by Congress in 1974 to ensure that workers who were promised a pension would get it, even if their employer went out of business.

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Under Monday’s high court ruling, the agency will be an insurer of last resort, not a convenient way for employers to escape paying for their unfunded pension obligations by declaring bankruptcy.

“Forty million workers and retirees can sleep better tonight because of today’s Supreme Court decision,” said Labor Secretary Elizabeth Hanford Dole, who is chairman of the pension insurance board. The government’s “victory in this case will help discourage unwarranted termination of pension plans and encourage better funding of pensions.”

Although a victory for the pension agency and employees in general, it may prove to be a setback for employees whose company is bankrupt or on the verge of bankruptcy.

In this case, the Dallas-based LTV Corp. had said that it could stay in business only if it were relieved of a $2.5-billion pension liability. In response to the ruling Monday, LTV issued a statement saying that it “still cannot afford” to pay its pension obligations, despite a rebound in the steel business.

But LTV is not alone in having huge unfunded pension obligations. Last month, the agency released a list of 50 major American corporations with large, underfunded pension systems, including such familiar names as General Motors, Chrysler, Pan Am and United Airlines. If these companies were to default on their obligations, it would cost the agency $14 billion, it said.

Last year, an appeals courts in New York relieved LTV of its pension debts, thereby casting doubt on the stability of the entire federal pension insurance fund. In 1986, LTV filed for Chapter 11 bankruptcy and turned over to the pension agency the responsibility for paying pensions for 100,000 of its workers. These pensions were underfunded by about $2.5 billion.

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However, when the steel business rebounded, LTV resumed operations at many of its plants. It then negotiated with the steelworkers’ union to add to the basic pension contributions being provided by the government.

Lawyers for the agency cried foul and went to court to force LTV to resume paying for its basic pension plans. But a federal judge in New York, backed by the appeals court there, ruled that the agency did not have the legal authority to force the steelmaker to take back its pension obligations. The lower courts concluded that the labor and bankruptcy laws took precedence over the law that created the pension insurance fund.

In appealing to the Supreme Court, the pension agency said that this ruling drew a road map that could lead to financial disaster for the agency. Other companies with financial trouble would realize that they could dump huge pension liabilities on the federal agency while staying in business.

The agency “could then become an open-ended source of industry bailouts,” with other employers, and possibly taxpayers, forced to pick up the tab, the agency told the justices.

In reversing the New York ruling, Justice Harry A. Blackmun wrote for the majority that the 1974 law gave the agency clear powers to protect the nation’s private pension plans. It specifically “empowers the (pension) agency to restore” to the employer the duty to fund its pension plans to protect the federal insurance fund and prevent abuses, he said.

The opinion in the case (PBGC vs. LTV, 89-390) did not spell out the rules for determining when a bankrupt employer can be forced to keep paying its pension obligations. However, it clearly stated that these decisions are to be made by the pension insurance agency, not a bankruptcy judge.

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Moreover, legal experts said that the decision seemed to indicate that the pension board could force a company filing for bankruptcy to make pensions its first priority, leaving other creditors in line for any leftovers.

Julian Scheer, a senior vice president for LTV, said that the decision “presents us with a problem and we don’t have an answer yet. This is a $300-million-a-year burden which the company cannot afford.”

A spokesman for the pension agency said that the agency will consider bankruptcies “on a case-by-case basis. In this case, we think LTV can afford to pay for its pensions.”

If the high court had ruled for LTV, the federal agency would have seen its deficit immediately double to about $4 billion. Faced with such a large and growing debt, the agency would have been forced either to raise the premiums paid by employers or to get a bailout from the taxpayers.

When the agency began 16 years ago, employers paid an annual premium of $1 per employee. But, because of bankruptcies, the premiums have been steadily raised, to a current average of $19 per worker. The agency was modeled after the Federal Deposit Insurance Corp., which insures bank deposits, and the former Federal Savings and Loan Insurance Corp., which insured S&L; deposits and has bequeathed the taxpayers a debt that may total more than $100 billion.

In other actions, the court:

--Rejected a religious challenge to California’s licensing requirements for day care centers, which prohibits corporal punishment for an estimated 400,000 children in day care centers (North Valley Baptist Church vs. McMahon, 89-1652).

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A minister from Redding, Calif., challenged the rules as a violation of the church’s religious freedom. But a federal judge upheld the rules, and the high court without comment turned down the appeal.

--Cleared the way for a trial in the case of a 37-year-old woman who says she is the daughter of Hank Williams Sr. and seeks a share of the late country music singer’s royalties (Williams vs. Stone, 89-1538). The woman, Cathy Yvonne Stone, was born five days after Williams died in 1953. Last year, an Alabama court ruled that she is a legal heir to the late country singer and a New York appeals court said that a jury should be permitted to decide whether she is entitled to a share of his royalties.

--Agreed to decide whether a doctor in California who loses his privilege to practice at a hospital can sue the facility and its medical staff under the federal antitrust laws. Hospitals have contended that doctors who sit on their peer review boards should be protected from any liability, but the U.S. 9th Circuit Court of Appeals ruled last year that a Los Angeles hospital must face trial on a damage suit contending that it violated the federal law covering conspiracies that are in “restraint of trade.”

The case arose when Dr. Simon J. Pinhas, an eye surgeon, lost his privilege to practice at the Midway Hospital Medical Center in Los Angeles. In the fall, the justices will hear arguments in the case (Summit Health Ltd. vs. Pinhas, 89-1679).

BACKGROUND

The federal Pension Benefit Guaranty Corp. was created in 1974 to insure the pension benefits that had been promised to private sector employees, both current and retired. If a pension plan promises a fixed benefit based on years of service, it is covered by the government insurance. Employers pay the cost of this program. Last year, a federal court in New York ruled that a company that declared bankruptcy could be relieved of its pension obligations, even though it resumed operations.

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