Ford Aerospace Workers Worry Over Pensions
Since Loral Corp. announced last month that it was buying Ford Aerospace here, Julio Sierra has heard nothing but rumors that the sale somehow involved pension funds.
The 61-year-old former marketing manager, who lives on a $2,500-a-month pension, is concerned that his good life will change. He worries that the deal will wreck his retirement.
“I have a lot of questions,” said Sierra, who worked at Ford for 26 years.
But there have been few answers. The pension plan is estimated to have $300 million more than required by law, and sources say Loral agreed to let Ford Motor Co. keep $100 million of it. Many workers feel that the money is theirs.
The issue is hardly clear. Company claims on overfunded pension money are the subject of furious debates, numerous lawsuits and proposed legislation in Congress, in part because of the potential risks it poses to benefits that employees work a lifetime to accrue.
Overfunded pensions are those that have funds in excess of the amount that is anticipated to be paid out later to a company’s retirees. The excess usually results when investments made by the pension fund are successful and yield higher-than-expected returns.
Many workers believe that the excess money should be theirs, because the fund was created from money set aside for them. They worry that tapping the surplus can leave a pension fund vulnerable to downturns in the economy and bad investments.
The inspector general’s office at the Department of Defense is conducting a preliminary investigation into whether the government is entitled to any excess pension funds, Pentagon spokesman Jim Turner said Thursday.
As the debate goes on, many of Ford Aerospace’s 17,000 employees, including 2,700 in Orange County, remain largely in the dark.
Retirees complain that Ford hasn’t bothered to send them any information about the acquisition. Loral has sent letters--signed by company Chairman Bernard Schwartz--to employees that are reassuring but provide few facts.
“I’d like some details, which Mr. Schwartz probably isn’t prepared to give out, about the status of our pension fund, the overfunded amount, and if there are any changes in benefits,” Sierra said.
Schwartz has promised that his company plans to maintain substantially the same benefits for Ford Aerospace employees and retirees after the acquisition closes in October, and he said the pension fund will continue to have a surplus. Schwartz will speak to some Ford Aerospace employees in Newport Beach today for the first time since the acquisition announcement.
Donald L. Fleer, a laboratory worker at the company’s Aeronutronic Division in Newport Beach, said he is hoping Schwartz will fill in some of the blanks about the pension plan during his visit.
“I’ve often wondered how safe that pension plan is going to be,” said Fleer, who has worked at the company for 13 years. “I always thought it was our benefits.”
Ford is not the first company that has attempted to recover surplus pension funds--known as a reversion. And many of the past attempts have been opposed by unions and other groups that say the excess funds should be distributed to employees.
The Employee Retirement Income Security Act, known as ERISA, expressly prohibits an employer from removing assets from an ongoing pension plan.
But in recent years, companies have circumvented that prohibition by terminating the pension plans and thereby gaining access to any reversions. Ford Motor officials confirmed that termination is one option being discussed, but said the amount that Ford will keep from the overfunded pension is still under discussion.
The termination of pension plans by companies wanting access to excess pension funds--a practice that became popular during the merger and acquisition frenzy of the 1980s--is also attracting the attention of watchdogs in Congress and elsewhere.
Turner, the Pentagon spokesman, said government investigators are asking for details on the deal and trying to determine the amount of overfunding in the Ford Aerospace pension plan and whether Loral and Ford’s handling of that money complies with federal laws.
According to a Securities and Exchange Commission filing, Loral has agreed to indemify Ford against any government action. That means that Loral has assumed the liability if the government attempts to recoup some of the money.
Congress has passed several laws intended to discourage employers from terminating their defined benefit plans to receive a reversion of excess plan assets. The Tax Reform Act of 1986 imposed a 10% excise tax--later increased to 15%--on surplus pension funds retained by an employer.
The laws apparently have had a dramatic effect on reversions, which have declined from a 1985 peak of 582 reversions worth $6.1 billion to 149 reversions worth $758 million last year, said Jane Hoden, a spokeswoman for the Pension Benefit Guarantee Corp., the federal agency that oversees pension plans.
The American Academy of Actuaries, a Washington-based insurance industry lobbying group, does not encourage pension reversions, said Gary Hendricks, director of government affairs. But he said the group opposes limits on use of excess pension money because it is concerned companies will not maintain adequate funds.
Still, some lawmakers want to make it harder for companies to use reversions. Various bills are pending in the House and Senate that would change the laws regarding reversions. The bills include provisions that would:
* Require employers to set up identical plans and provide cost-of-living increases for all retirees before terminating the plan.
* Place an 18-month moratorium on all pension plan terminations;
* Require employers to purchase annuities from insurance companies with the highest credit ratings.
* Increase the tax on reversions to 30% from 15%.
Rep. Peter Visclosky (D-Ind.), who has proposed legislation to discourage pension fund terminations, said he does not believe a bill changing the pension law can be passed in the current session, in part because some of the proposals are viewed as tax increases. The Bush Administration has said it will oppose one of the Senate bills.
Whatever changes are made in pension laws, they are unlikely to affect Loral’s pending takeover of Ford Aerospace. Only time will tell if employees should worry.
“Change is difficult for everyone to cope with,” said Dennis Kubrakin the missile division’s procurement operation. “To me, it’s a matter of making sure I’ll be employed.”
He said Loral has a good reputation and that he believes the buyout “is going to turn out well for everybody.”
Joseph Grazaitis, 66, a Ford Aerospace retiree in Huntington Beach, is less certain. He said the company’s sale has left a gaping hole in what was otherwise a sound, reassuring retirement plan. He speaks with deep concern and some mistrust in his voice about Ford and Loral’s handling of the pension issue.
“Nobody says anything,” he said, “and it’s really a very strange feeling.”
Times staff writer Chris Woodyard contributed to this story.
