Pentagon Wants $178.3 Million in Ford Motor Deal in Newport
A Defense Department agency is seeking to recover $178.3 million of an overfunded pension program used by Loral Corp. in acquiring a Ford Motor Co. defense subsidiary here in October, according to documents obtained by The Times.
In a letter dated Dec. 21, the Defense Logistics Agency, which oversees Pentagon contracts, asked Loral to return $178.3 million in excess pension assets retained by Ford Motor as partial payment for the sale of Ford Aerospace Corp. in Newport Beach.
Loral spokeswoman Elizabeth Allen said Friday that the New York-based defense electronics firm believes that the government is not entitled to the money. She declined further comment.
Mark Miller, a spokesman for Ford Motor, said the contracting party is now Loral, which assumed the obligations of Ford Aerospace.
Ford Motor said in a statement: “While neither we nor Loral Aerospace believes the government is entitled to the money referred to in the letter, the letter was sent to Loral and any questions should appropriately go to Loral Aerospace.”
Ford Motor kept a “windfall” of $213.3 million of an unspecified surplus in the pension plan before transferring the plan to New York-based Loral, according to agency documents obtained by The Times under the Freedom of Information Act. The government is not claiming the full $213.3 million because part of that total involves pension assets generated from commercial contracts that the government cannot legally claim.
“Such a scheme violated the contractor’s responsibilities to the government and to the taxpaying public,” the agency said Jan. 8 in a follow-up letter.
The pension-fund issue arose last fall, when Loral bought Ford Aerospace for $715 million in cash. At the time, sources said, Loral beat out two other bidders, in part by allowing Ford Motor to keep part of Ford Aerospace’s overfunded pension plan.
The documents released this week show that by allowing Ford to keep such a large share of the overfunded amount, Loral raised the value of its bid to $928.3 million.
Loral Chairman Bernard Schwartz has questioned the government’s right to the pension money. In an interview last fall, he expressed doubt that a government claim “would stand up in the courts.”
Schwartz has said that Loral indemnified Ford Motor against any government bid to recover pension money and that Ford Motor had kept “about $100 million” from the overfunded pension plan.
The agency’s Jan. 8 letter to Ford Aerospace said the company was not in compliance with pension law and asked Loral to respond to the government’s request within 30 days. Agency officials declined to comment on further action the government may take.
The agency said if the overfunding had remained intact, the United States would not have been required to make payments into the pension fund for five to eight years. Because of the sale, the government must now begin making such payments, the agency said.
Schwartz has insisted that the company has not officially terminated the pension plan, but the Defense Logistics Agency letter said the elimination of the Ford Aerospace name and sale of the company meant automatic termination.
During the merger craze of the 1980s, the issue of who gets to keep surplus pension money when a pension plan is terminated has been the subject of much controversy and lawsuits. At 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.
By law, a pension program must have enough money to meet current and future benefit obligations to employees and retirees. Loral officials have said the pension fund remains in an overfunded position.
In many defense contracts, part of the government’s payment to the contractor is earmarked to pay for employee benefits. But the government has only recently begun to claim excess assets in terminated pension plans.
Calculating the value of the Pentagon’s claim is a complex undertaking, because the government has no claim on pension assets generated from commercial operations and the amount it pays into a pension fund depends on the type of contract.
The government said it does not have data on certain contracts, but it estimated the value of commercial operation contributions to the Ford Aerospace plan at $41 million.
The Pentagon’s Inspector General’s Office estimated in January, 1989, that of 10 pension plans terminated by defense contractors in 1982-87, the government could be entitled to $90.9 million, of a total of $527.3 million in surplus funds.
The report concluded that the government had failed to protect its share of the assets. The Pentagon clarified its rights last year in new policy statements and regulations.