Pensions in Crisis by Karen Ferguson

Author:Karen Ferguson [Ferguson, Karen]
Language: eng
Format: epub
ISBN: 978-1-61145-644-8
Publisher: Skyhorse Publishing, Inc.
Published: 2011-01-15T00:00:00+00:00

For Bill Hunsaker, the raid on his plan was just the beginning of his pension nightmare. When the Pacific Lumber plan terminated in 1986, the plan trustees bought annuities for all current and future pensioners based on what they had earned up to that point, as required by law. The life insurance company the trustees chose to provide the annuities was Executive Life Insurance Company of California, soon to be a household name. Executive Life was a subsidiary of a finance company called First Executive Company, which had bought one-third of the $900 million in Drexel Burnham Lambert junk bonds used by Charles Hurwitz to finance his takeover of Pacific Lumber.

The selection of Executive Life worried Bill Hunsaker and other Pacific Lumber retirees. There had been news reports that the huge insurance company might be in serious financial trouble because of its heavy investment in junk bonds, and they were concerned that their pensions, already robbed of inflation adjustments, might be at risk. They convinced California pension lawyers Alfred Sigman and Jeffrey Lewis to take a look at their situation.

“We didn’t like what we found,’ says Lewis. Not only was Executive Life’s solvency in question, there was also evidence that the insurance company’s selection stemmed mainly from its parent company’s role in financing Maxxam’s takeover of Pacific Lumber. If so, this situation was not only imprudent, but also a conflict of interest and a clear violation of the pension law. Lewis told a congressional committee that the pension plan managers “violated their duty to act for the sole benefit of plan participants; they wanted to reward Executive Life for its role in financing the takeover and/or to maximize recapture of plan assets, given the fact that Executive Life was the lowest bidder.”14

On September 25, 1989, Sigman and Lewis filed suit in court on behalf of the Pacific Lumber participants, seeking to have the annuities transferred to another insurer. The lawsuit was still pending when Executive Life went bust. On April 11, 1991, the California Insurance Commission moved to take over the insolvent insurance company. Soon after, Bill Hunsaker and the other Pacific Lumber Company retirees received notices that their benefits would be reduced by 30 percent.

Some 86,000 annuitants in 46 states were affected by the failure of Executive Life. The fallout from the largest insurance company failure in history was tremendous. Accountant James W. Seddon, 76, of Mount Vernon, New York, was dismayed and angered but not entirely surprised when he heard the news. Retired for 12 years from Revlon Corporation, he had been concerned ever since he learned that the company was replacing his pension with an annuity — from Executive Life. Like Pacific Lumber, Revlon had been a family-owned, paternalistic-type company until 1985, when it was taken over by Mac-Andrews and Forbes Holdings Inc., owned by Ronald Perelman, another corporate raider. First Executive Company helped finance the $2.7 billion takeover by buying $370 million worth of Drexel Burnham junk bonds. Perelman then raided Revlon’s $214 million pension plan,

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