Pension `raiders' facing deficits
Goodyear No. 5 on list of firms that cashed in on surpluses in 1980s
By John Russell
Beacon Journal business writer

Every month, Don Baird opens his mailbox and finds a pension check from Goodyear, where he toiled for 23 years as a midlevel salaried worker.
So far, he's never missed a check. But it still rankles the 69-year-old Akron retiree that 14 years ago, Goodyear transferred $400 million from its overfunded pension plan into the general fund.
Around the country, dozens of other companies did the same thing, cashing in their overfunded pension plans and using the surplus to repurchase stock, pay debt or make acquisitions.
``It's always bugged me that these companies were allowed to rake off these pension funds,'' Baird said. ``I felt it was the employees' money. It should have stayed separate. Good times don't last forever.''
Indeed, Goodyear, Akron's largest for-profit employer, now faces a $1 billion deficit in its pension fund after two disappointing years in the stock market that have wiped out hundreds of millions of dollars from the fund in the last two years.
At the same time, Goodyear's pension obligations are rising as the company has offered early retirement plans to hundreds of workers in recent years to cut costs.
Around the country, hundreds of other companies cashed in their fat pension funds in the 1980s, as Goodyear did, through a complex but legal procedure of shutting down the funds, selling the pension plans to outside insurance companies, and keeping surplus money for other purposes.
And many of those companies now find themselves facing large deficits in their pension plans.
Some consumer groups have called the process ``pension raiding,'' a corporate practice that swept the country.
And before the law was changed in 1990 to discourage the practice, Goodyear was one of the biggest ``raiders'' in the country at No. 5 on the top 10 list compiled by the Pension Rights Center, a consumer advocacy group based in Washington that promotes pension rights of American workers.
Other companies on the list include Exxon, United Airlines Inc., Merrill Lynch & Co. Inc. and Union Carbide Corp.
``We were very much opposed to pension raiding,'' said John Hotz, the group's deputy director. ``These monies were put into the pension plans to fund benefits specifically for participants. Now some of these plans are in a little trouble.''
Today, eight of the 10 companies on the top 10 list have pension deficits, according to the companies' financial filings with the Securities and Exchange Commission. The deficits range from $16.7 million at the Great Atlantic & Pacific Tea Co. to $2.5 billion at United Airlines.
In contrast, Union Carbine. (bought last year by Dow Chemical Co.) had a pension surplus of $83 million. Bridgestone Corp. of Japan, the only foreign company on the list, said its U.S. pension fund carries surplus but didn't have a recent figure. Bridgestone bought Akron's Firestone Tire & Rubber Co. in 1988, three years after Firestone transferred $285 million from its salaried pension fund into its general coffers.
Retirees at Goodyear actually have little to worry about. When the Akron tire maker terminated its salaried pension fund in 1988, it bought an annuity contract from Metropolitan Life Insurance Co. to pay the pensions of all salaried workers who had retired up until that year.
``I get a check once a month. I've never missed it, and I'm not concerned about it,'' said Joseph Mittiga, who retired in 1986 from Goodyear's former aerospace unit. The company sold that unit in the late 1980s to reduce debt it amassed during an attempted corporate takeover by the late James Goldsmith.
Goodyear set up a new plan to cover workers who retired after 1988.
The tire company used the $400 million surplus from the old pension plan in 1988 to reduce debt and boost earnings.
Goodyear is not required to make an additional payment into the fund until Sept. 15, 2003.
The company, struggling with losses and a huge debt, has said it will remain in compliance with pension funding requirements, although it declined to say where it would find the extra money to contribute.
The fund had a balance of almost $4.2 billion as of Dec. 31. The plan covers tens of thousands of workers in many countries. About 40 percent of Goodyear's pension liability is to employees in the United States.
Goodyear said yesterday that relating the current deficit to the 1988 decision to transfer money out of the pension fund is unfair.
``To look back at decisions made by many companies nearly 14 years ago and link them to today's volatile market environment is unreasonable,'' spokesman Keith Price said. ``What is important is that we are committed to meeting our pension fund obligations. We will continue to address the requirements to meet our obligations to the people who have served and continue to serve our company.''
Even consumer advocates say Goodyear has a point. Companies put their pension funds in a wide array of investments, and it would be nearly impossible to guess how they might have invested the extra funds.
But since Goodyear terminated the plan in 1988, the Standard & Poor's 500 index has climbed 462 percent. That means an investment of $400 million invested in the S&P 500 index companies, with dividends reinvested, would yield almost $2 billion today.
``Would Goodyear's fund be underfunded today if it had left that money in? Who is to say?'' said Hotz of the Pension Rights Center. ``There are all kinds of issues and factors, both in the company and in the market. And to be honest, as long as a company like Goodyear has a reasonable chance of success in the future, the underfunding doesn't raise monumental concerns.''
Last year, about 60 percent of private pension plans at American companies found themselves underfunded -- twice as many as a year before -- chiefly because of a downturn in the stock market where many of the funds are invested, according to Watson Wyatt Worldwide, an employee benefits consulting firm based in Washington.
Two years after Goodyear pulled its surplus money out of the original pension plan, Congress passed the Pension Protection Act of 1990, which imposed a 50 percent excise tax on any surplus funds that companies cashed out of pension plans. Since then, fewer and fewer companies have shut down or sold pension plans to use the extra cash for other purposes. But it's still possible.
``It is still legal to this day to terminate the plans and take excess assets, and use it for other purposes, after paying some pretty hefty taxes,'' said Dr. Olivia S. Mitchell, professor of insurance and risk management at the Wharton School of the University of Pennsylvania. ``But it really hasn't happened a lot in the last 15 or so years.''




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