U.S. Wants Portion of Ford Aerospace Pension Surplus

In an unusual action, a Defense Department agency is demanding that the government receive a portion of an over-funded pension plan used by Loral Corp. in acquiring a Newport Beach defense firm from Ford Motor Co. last October, an agency spokeswoman said Wednesday.

The Defense Logistics Agency, which oversees Pentagon contracts, asked in a letter dated Jan. 8 that Loral Aerospace, formerly Ford Aerospace Corp., reimburse to the government its “equitable share” of the pension plan, Linda Nichols, an agency spokeswoman, said.

The DLA letter did not specify what amount the government is seeking, but one government source said the claim is a “big chunk” of the amount in question, which could range rougly from $100 million to $300 million.

New York-based Loral Corp., the parent of Loral Aerospace, has until next week to respond to the letter. “We have been in regular discussions with the government” on the excess-pension assets, said Elizabeth Allen, a Loral spokeswoman. “Our position is they are not entitled to it.”

Nichols declined to comment on whether the government would go to court to recover the money if Loral declines to cooperate.

Loral and Ford officials declined to comment specifically on the letter.

The pension-fund issue arose last fall when Loral Corp. acquired Ford Aerospace for $715 million. At the time, sources said that Loral beat out two other bidders, in part, by allowing Ford Motor Co. to keep $100 million of Ford Aerospace’s pension plan, which was estimated to be over-funded by $300 million. The transaction, in effect, raised the value of Loral’s bid to $815 million.

In November, the DLA complained publicly that Ford Motor Co. had failed to supply necessary information about the pension fund. Shortly thereafter, the company complied with the government’s requests for information.

Loral Chairman Bernard Schwartz has questioned the government’s right to pension assets, but he said that Loral had indemnified Ford Motor Co. against any government attempt to recover pension monies.

By law, a pension fund must have enough funds to meet current and future benefit obligations to employees and retirees. During the merger craze of the 1980s, the issue of who gets to keep surplus pension funds when a pension plan is terminated has been the subject of a lot of controversy and lawsuits.

In many defense contracts, a portion of the government’s payment to the contractor is specifically earmarked to pay for employee benefits. But the government only recently has begun claiming assets in over-funded pension plans.

The Inspector General’s Office of the Defense Department estimated in a January, 1989, report that of 10 pension plans terminated by defense contractors between 1982 and 1987, the government could be entitled to $90.9 million of a total of $527.3 million in surplus pension funds.

The report concluded that government interests had not been protected in the past and questioned why contracting agencies have failed to collect their share of pension assets when funds were terminated.

Last year, the Pentagon clarified its rights in new policy statements and regulations. The DLA has become more active in pursuing the government’s claims to pension surpluses, according to Derek Vander Schaff, deputy inspector general for the Pentagon.

“The level of consciousness here about the government’s claim in these cases has risen dramatically with that report and regulation changes in the last year,” he said. “Our people weren’t alert to our rights in the past.”

Vander Schaff said he is aware of at least one other case in which the Defense Department is seeking to recover excess pension funds from a terminated plan. That case involves an East Coast contractor that acquired another company, he said. He declined to name the firm.

The defense industry saw more company pension-plan terminations in the 1980s as a result of major restructurings or mergers. During the same time, an extended bull market on Wall Street generated big returns for many pension investors and created big surpluses in many retirement plans.

In an interview in October, Loral’s Schwartz said that the amount of pension monies that could be the subject of a dispute with the government would be less than the entire over-funded amount.

“It’s a complex issue, and no claim has been made,” Schwartz said. “If they did make it, I don’t know how it would stand in the courts.”

Schwartz has insisted that the company does not need to terminate the Ford Aerospace pension plan in order to use those funds. But Jane Hoden, a spokeswoman for the Pension Benefit Guaranty Corp., which oversees pension plans, said the government believes a plan must be terminated before excess assets can be transferred in any way.