More than 1,100 current and former employees of the News-Journal Corp. will have to rely on the government for their pensions after a judge refused to set aside $14.5 million from the company’s recent sale to strengthen its underfunded pension plan.
The Pension Benefit Guaranty Corp., a federal insurance fund in Washington, D.C., announced Tuesday it has taken control of the News-Journal Pension Plan, which cover employees of the Daytona Beach News-Journal and its six Pennysaver shopping guides. Monthly pension checks being paid to about 450 retirees will continue without any interruption, the PBGC said.
The PBGC had been negotiating with the newspaper’s receiver for nearly a year on terms for taking over the pension plan. The plan is only 65 percent funded. It holds investments currently valued at $28.2 million, but requires $43.6 million to meet its long-term obligations, according to PBGC’s actuaries. The PBGC expects to be responsible for $15.4 million of the shortfall.
After the publications were sold in March, the insurance fund filed claims totaling $26 million against the sales proceeds, but earlier this month agreed to reduce its demands to $14.5 million. However, U.S. District Judge John Antoon II, who has been overseeing the newspaper’s finances for the past year, ruled Aug. 13 in Orlando that nearly all of the News-Journal Corp.’s remaining cash and real estate, estimated at $40 million, should go to Atlanta-based Cox Newspapers, a former minority co-owner of the company, rather than to the PBGC. The payment will satisfy just a portion of the $155 million that Cox won in litigation against the Davidson family, the paper’s prior majority owner. The judge said Florida law required Cox’s award to be given priority over the PBGC claim.
Eight of the newspaper’s former employees and retirees , filing as interveners in the Cox vs. News-Journal lawsuit last year, had urged the court to put some of the corporation’s surplus funds into the pension plan to offset losses the plan suffered in the 2008 stock market decline. However, Antoon declined to impose any new pension-funding requirement beyond that contained in existing federal law. James Hopson, hired by Cox to monitor the Davidson management and later appointed by Antoon as the corporation’s receiver, said in a court filing the paper had met all its pension obligations under the federal tax code.
Within the next several weeks, the PBGC will send notification letters to all participants in the News-Journal plan. Under federal pension law, the maximum guaranteed pension at age 65 for participants in plans that terminate in 2010 is $54,000 a year. The maximum guaranteed amount is lower for those who retire earlier or elect survivor benefits. In addition, certain early retirement subsidies and benefit increases made within the past five years may not be fully guaranteed. In most cases the pensions will be less than $10,000 a year.
In a related matter, the interveners also challenged Hopson’s decision in May to cancel $5,000 paid-up life insurance policies that for many years were given to employees upon their retirement. Antoon ruled the policies were not covered by the pension plan and the receiver was free to cancel them. The cancellation saved the paper about $700,000, Hopson said.
Some retirees expressed mixed feelings about the PBGC takeover.
“I’m glad the PBGC finally stepped in to preserve our pensions,” said Thomas S. Brown, a retired business writer and one of the interveners. “But it’s too bad that Cox, which made many millions from the efforts of News-Journal employees over the years, chose to dump the newspaper’s pension obligation onto the government. I see it as one more case of corporate welfare.”
Besides safeguarding pensions, the PBGC takeover will help some News-Journal retirees in the 55-64 age bracket pay for their health insurance. Retirees who pay at least 50 percent of their insurance costs out of pocket are now eligible for up to 80 percent reimbursement through the government’s Health Care Tax Credit program.
The News-Journal Pension Plan became an orphan after the new owners of the paper, Halifax Media, refused to take financial responsibility for the plan, leaving it in the hands of the receiver. Hopson then petitioned PBGC to take it off his hands through a “distress termination” process.
The defined-benefit pension plan was put in place by the Davidson family decades ago. The Davidsons first came under legal attack by Cox in 2004 when the Atlanta chain successfully argued the family had “wasted” millions of dollars in corporate revenue on nonprofit music groups. Cox was particularly incensed when it learned the News-Journal had paid $13 million to put the newspaper’s name on a performing arts center founded by the late Herbert “Tippen” Davidson Jr., the company’s chief executive. The Davidsons, booted from management in 2008, contended the arts spending enhanced the newspaper’s reputation in the Daytona area and was a legitimate promotional expense.
The PBGC said assumption of the News-Journal plan will increase its own $22 billion in liabilities by about $15 million. However, it has about $70 billion in assets to offset the liabilities. The insurance fund plugs the gap on insolvent plans by collecting insurance premiums from 22,000 private plans and using earnings on its investments. A s of mid-2009, it was operating more than 4,000 pension plans covering 1.4 million people.
The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 29,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns.
Thomas S. Brown, who has led the effort on behalf of News-Journal retirees, can be reached at 386/576-6671 or by email.