Hostess Pensions Were Used To Avoid Bankruptcy

Hostess Brands used employee pension contributions in 2011 to avoid bankruptcy as the company struggled to stay in business under new management.

Current CEO Gregory Rayburn, who was appointed by a resuturing advisory company in March of 2012 made the announcement during an interview about the pension fund on Monday, and he could not say how much money was taken and how many former employee’s pensions were affected.

“Whatever the circumstances were, whatever those decisions were, I wasn’t there,” Rayburn said.

Rayburn said he learned of the shortage just before the company closed its doors last month, Hostess filed for bankruptcy for the second time in January of 2012 and then was forced to shut down after one of the employee unions decided to go on strike because of the halting of pension contributions.

“The company’s cessation of making pension contributions was a critical component of the bakers’ decision” to walk off the job, said Jeffrey Freund of Bredhoff and Kaiser PLLC, a lawyer for the union.

“If they had continued to fund the pension, I think we’d still be working there today,” said Craig Davis, a 44-year-old forklift operator who loaded trucks with Twinkies, cupcakes and sweet rolls at an Emporia, Kan., bakery, for nearly 22 years.

Hostess’s pension plans still are making pay outs to retirees. The Bakery & Confectionary Union & Industry International Pension Fund, the largest fund covering Hostess bakers, was 72% funded when Hostess stopped making contributions, the company said.

“In five months before this past January’s bankruptcy filing, the company missed payments to the main baker pension fund totaling $22.1 million,” Freund said.

The former Hostess chief executive, told employees in an August 2011 letter that the decision to “temporarily suspend” pension contributions was a “necessary bridge” to a larger plan to turn around Hostess. In the fiscal year ended in May 2011, Hostess had a net loss of $341 million on sales of $2.5 billion.

As the company’s financial condition deteriorated, “whatever cash it had was being used to fund the business, to keep it afloat,” Mr. Rayburn said.

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