Court Backs Firms’ Power Over Pensions

The Supreme Court on Monday gave companies broad control over the handling of their pension funds, even when their employees have contributed to the fund and helped to create a large surplus.

In a 9-0 ruling, the justices threw out a lawsuit brought by retirees from Hughes Aircraft Co., who maintained they should share in a $1.2-billion surplus in its pension fund. They complained that Hughes had diverted the money to other purposes, including paying for buyouts to encourage early retirements.

But the high court said the federal pension law protects retirees and employees by guaranteeing their promised benefits will be paid. If the assets in the pension fund are inadequate, the company still has a duty to pay the benefits, the court said.

However, if the plan develops a surplus, employees or retirees have no right to claim it, the justices added.

Pension experts said Monday’s ruling preserves stability in the retirement system. About $4.5 billion rested in corporate pension funds last year.

Hughes Aircraft had what is known as a defined-benefit plan, in which the benefits are promised and made a legal obligation of the company. Some 33 million American workers and retirees are covered by defined-benefit plans.

The case before the high court tested whether employees had a right to some of the funds if they had contributed to the plan.

In 1989, Hughes altered its pension plan and stopped making contributions, leading to a large surplus. Two years after the aerospace company implemented the changes, five retirees sued Hughes on behalf of 10,000 workers who had contributed to the plan. The lawsuit suggested the extra money was diverted to the underfunded pension plan of General Motors Corp., which bought Hughes in 1987 and subsequently renamed the unit Hughes Electronics. Hughes Electronics defense operation, which still carried the Hughes Aircraft name, was sold to Raytheon Co. in 1997.

Congress in 1974 passed a law to protect pension rights. It said pension funds are for the “exclusive benefit” of the workers and may not be diverted for other uses.

Based on this provision, the U.S. 9th Circuit Court of Appeals cleared the way for the Hughes retirees to go to trial.

Hughes appealed that ruling, and it was joined in the Supreme Court by the Clinton administration and the U.S. Chamber of Commerce. The government and the business groups argued that pension funds should not be tapped just because the company has made changes in its retirement system.

On Monday, the Supreme Court agreed in the case of Hughes Aircraft vs. Jacobsen, 97-1287.

Hughes “never deprived [the retirees] of their accrued benefits,” wrote Justice Clarence Thomas. Moreover, because the company’s pension fund continued to exist, no surplus funds were available for distribution to the former employees, he said.

The company’s control over the pension fund is not fundamentally altered, Thomas said, simply because the former employees contributed to the plan in the past.

John Chevedden, a Hughes retiree from Redondo Beach, said the decision exposes how little control workers have over their pension funds.

“This gives companies carte blanche to siphon money from one pension plan to another, from a well-funded plan to one that is underfunded,” he said. “I think it shows a need for a change in the law.”