In yet another turn to the strange saga of America's most iconic junk food-maker, Hostess, the now-defunct manufacturer of Twinkies and Ding-Dongs admitted Monday to routinely diverting workers' pension plan contributions into other company operational expenses.
According to the Wall Street Journal, the company - which abruptly announced that it was ceasing operations after unionized workers balked at post-bankruptcy wage and benefits cuts and began a strike - acknowledged that it had diverted money once intended for employee pensions into its general operating funds, as far back as August 2011.
The company was, at the time, teetering on the brink of bankruptcy, and made an announcement that it would no longer fund its pension plan. But company contributions were still coming and ended being used to help prop up the economically embattled bakery, even after Hostess declared bankruptcy in Jan. 2012.
Because those contributions came from Hostess and not its employees, pension experts say the scheme probably did not violate federal pension laws, though lawyer James P. Baker says the move was known as "betrayal without remedy."
Gregory Rayburn, the company's CEO told the Journal that the pension diversion was "like a lot of things in this case" and says that the diversion plan began long before he assumed his post.
Hostess's move to cease its pension contributions apparently led directly to the strikes which eventually led the company to shutter its operations.
Complicating matters is the fact that Hostess retirees are part of a multi-employer pension plan, though its pension plans continue to be solvent and the PBGC has not been called in to help, so far. Its bakers' union pension fund was at a 72 percent funded ratio when the company ceased making contributions in 2011.
Contribution levels were also vastly different between the company's various unionized and non-unionized employees, with some contributing nearly $4.50 per hour into their pension plan.
Hostess missed more than $22.1 million in pension payments before the bankruptcy filing, and continued to miss as much as $4 million a month in payments until the contract disagreement.
"Whatever cash it had was being used to fund the business, to keep it afloat," Hostess's CEO told the Journal.
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.
It might have been "impossible" to undo the agreements that called for Hostess to make pension contributions using employee money, Mr. Rayburn added. One reason: Hostess could have been too short of cash to make up the difference, though he said he isn't sure.