Loral, Pentagon Settle Dispute Over Use of Pension Funds : Defense: The company said no cash is involved. The government had claimed it was owed $133 million.

The Pentagon’s Defense Logistics Agency and Loral Corp. have settled a dispute over the use of pension funds in the acquisition of Ford Aerospace Corp. in 1990.

Under the settlement, the New York-based defense company said no cash will change hands. The government had claimed Loral owed it $133 million. Opinions differ on who benefits most from the agreement.

“This is a settlement without cost to Loral anywhere,” said Elizabeth Allen, spokeswoman for Loral. “We never agreed the government had a legitimate claim.” The issue arose when Loral used Ford Aerospace’s over-funded pension assets to purchase the aerospace company, which is based in Newport Beach and is now called Loral Aerospace Corp.

In addition to paying $715 million in cash, Loral allowed Ford Motor Co. to keep $213 million of Ford Aerospace’s pension assets. Analysts said this drove up the cost of the acquisition and allowed Loral to beat out other bidders.

The transaction raised thorny issues. Over-funded 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 results when investments made by the pension fund yield higher-than-expected returns.

Some workers believed that the excess money should be reserved since it was originally set aside for them. They worried about tapping the surplus, which can leave a pension fund vulnerable to downturns in the economy and bad investments.

Upon completion of the acquisition, the defense agency intervened in October, 1990, demanding that $133 million of the $213 million belonged to the defense contracting agency because it had contributed to the fund in the past through contracts that included provisions for overhead, including pension costs.

Loral and agency officials said the settlement--finally reached on Sept. 3--was achieved as a result of another Loral acquisition. Allen said Loral acquired the Glendale-based Librascope Corp. unit of Bicoastal Corp. of Tampa, Fla., in bankruptcy proceedings in 1991. In a related transaction, Loral paid Bicoastal $15 million to acquire control of a pension fund with $121 million in over-funded pension assets. Bicoastal, formerly named the Singer Co. and owned by financier Paul Bilzerian, is in bankruptcy proceedings. The bankruptcy court approved the deal in September, 1992.

Allen said Loral will apply the $121 million in newly acquired pension assets toward the Ford Aerospace fund in order to satisfy the government’s concerns. As a result, no cash changes hands between Loral and the Pentagon agency, but the Ford Aerospace pension fund remains in an over-funded position, fulfilling one part of the government’s wishes, Allen said.

“We think this is fair for all parties involved,” Allen said.

Earl Nichols, a Defense Logistics Agency spokesman, said the government will receive the full value of its $133-million claim by making smaller pension contributions in future government contracts with Loral until the entire amount is recovered. Allen said neither party will have to contribute to the pension fund as long as it remains over-funded.

Byron Callan, a defense analyst at Prudential Securities, a brokerage in New York, said he does not expect the settlement to have a financial impact on Loral.

But he said it leaves open the legal issue of who owns over-funded pension assets of a government contractor--the company or the government.

“I think it’s still foggy,” Callan said. “Anyone assuming that over-funded pensions are not of interest to the Department of Defense should take note. The DOD fired a shot across the bow with the Loral case.”