Magazine article Personnel Journal

Paying for Pensions Proved Deadly, but Not Fatal

Magazine article Personnel Journal

Paying for Pensions Proved Deadly, but Not Fatal

Article excerpt

As dreadful as it would be for retirees to lose their medical benefits, it would be even worse if they lost their pensions. Fortunately for the retirees of Uniroyal Plastics Company Inc., their pension payments never stopped coming when their former employer experienced financial problems. What was unfortunate, however, was that paying for these pensions pushed The Jesup Group, which acquired Uniroyal Plastics in 1986, into bankruptcy.

At the time the Stamford, Connecticut-based corporation bought Uniroyal Plastics, the acquisition's pension plan was underfunded by approximately $70 million. Because of this large debt, The Jesup Group's annual required contribution to Washington D.C.-based Pension Benefit Guaranty Corp. (PBGC), which secured the plan, was $20 million.

When The Jesup Group could no longer keep up these payments and it struggled to restructure, the PBGC filed notices of lien against all of its assets. As a consequence, lines of trade credit dried up, working capital lenders weren't paid fully, and the company finally filed for bankruptcy in November 1991.

As one of The Jesup Group's largest creditors, the PBGC had the right to between 41% and 44% of the company's equity after it came out of bankruptcy. The company and the agency knew that if the agency took that stock, the company no longer would be a publicly held company. …

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