That soft, creamy filling in Hostess Twinkies, Ding Dongs and other semi-toxic snacks? Turns out it’s the American taxpayer.
It may not happen immediately, but the Pension Benefit Guaranty Corp. may well be handed responsibility for paying Hostess Brand obligations to its 5,600 bakers. The PBGC insurance fund – akin to the Federal Deposit Insurance Corp. – last month reported a $34 billion deficit. Does this sound familiar?
The bakers took the blame for killing the company when members went on strike last month.
The charge ignores the fact Hostess owed the confectionery workers union pension fund $1 billion when it filed bankruptcy in January of this year, and that the company continued to skip payments. Monday, the Wall Street Journal revealed that money that should have been dedicated to pensions was instead used for operations.
Like executive pay. The top 10 executives were awarded $3 million in raises this year.
The new chief executive officer said he was unaware employee wages ticketed for pension contributions were used for other purposes, a practice he called “terrible.”
That’s one way of putting it, but where does the taxpayer come in?
Hostess – a predecessor operated a Spokane bakery featured in Monday’s Spokesman-Review – had an incredibly fractured pension system. Employees at each plant decided for themselves what their group would have taken out of their paychecks toward their pensions. But they do not receive their pensions from the company. The money went into a multi-employer pension plan, which pools the pensions of workers in several companies.
Such plans are supposed to make pensions available to workers at small companies, and to spread risk if any one company in the pool failed. But if a significant participating company fails, the premiums paid by the other companies must increase to fill the gap. The plan covering the confectionery workers was already only 72 percent funded, barely adequate by some measures.
With Hostess out, other companies with workers in the plan are going to be under considerable stress, with the PBGC as backstop if the assets to pay retirees become inadequate.
More than 2,000 Hostess employees covered by the company’s own pension plan will definitely draw their benefits from PBGC.
Thousands of Kaiser Aluminum workers in the Spokane area are familiar with the drill because they have been getting pension checks from the PBGC for several years. Kaiser filed bankruptcy in 2002, and the federal agency agreed to pick up the pension obligations in 2003 and 2004.
Kaiser’s owner just walked away, but the hedge funds with Hostess could try to reclaim parts of the company – namely its valuable snack brands – after the PBGC has taken the pension burden away.
Some hedge funds have dumped pension obligations on the PBGC, yet retained ownership of companies like Delphi, the auto parts supplier. If the agency does come to need a bailout, barriers to the practice must become much higher.
A pension expert quoted in the Wall Street Journal called the use of employee pension contributions for other purposes “betrayal without remedy.”
Congress should find a cure.
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