Hostess Proposes Suspending Contributions

Hostess Brands Inc. proposed withholding contributions to its company defined benefit (DB) and multiemployer pension plans (MEPPs) for two years, according to a court filing.

In a plan filed with the U.S. Bankruptcy Court in New York, Hostess said it would stop contributing to the Interstate Bakeries Corp. (IBC) Defined Benefit Plan—which had $56 million in assets and $84 million in liabilities as of June 2, 2012— for two years and will restart the contributions in 2015. The suspension is intended to reduce Hostess’ debt and permit the company to restructure and emerge from Chapter 11.

The company’s union employees will be subject to an immediate 8% wage cut in the first year, with modest increases in following years, as well as a 17% reduction in health and welfare benefits. The company will withdraw from the 42 MEPPs to which it contributes, followed by a freeze on pension contributions for two years and reduced contributions thereafter, and will reenter if these and other conditions are met. Nonunion employees will be required to make similar sacrifices, with an 8% reduction in wages; the matching contribution provided under the DC plan that was suspended in 2011 will continue to be suspended for two years with reduced matching contributions thereafter.

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Hostess sponsors two different retiree medical benefit plans and two supplemental medical insurance plans, as well as a post-retirement life and health benefit plan. From June 3, 2012 to June 1, 2013, the projected cost of providing retiree benefits is approximately $1,130,225. As of June 2, 2012, the value of the total benefit obligation for retiree benefits was approximately $29.3 million.

Hostess contributed about $8 million a month to MEPPs prior to August 2011; after failing to make contributions that month, no further contributions were made to the plans. The company still owes approximately $1.04 million for the plan year that ended September 30, 2011 and approximately $6.5 million for the plan year that ended September 30, 2012.

In January 2012, Hostess announced intentions to withdraw from MEPPs, and reported about $860 million in debt (see “Hostess Files Bankruptcy After Failing to Reach Pension Agreement” and “PBGC Assumes Pension Liability for Bakery Workers”).

For the full court filing, click here.

 

Kodak to End Other Post-Employment Benefits

Kodak and its Official Committee of Retirees have agreed on a proposal to terminate retiree health care and survivor benefits, or other post-employment benefits (OPEB).

The benefits to be terminated include medical, dental, life insurance and survivor income benefits, and the proposed date of termination is December 31, 2012. This will relieve the company of $1.2 billion in OPEB liability. The proposed settlement does not impact retiree pension benefits. 

Kodak will provide the Official Committee of Retirees a $7.5 million cash payment to support initial administration and benefit obligations; a $635 million unsecured claim; and a $15 million allowed administrative claim that would have priority status in Kodak’s reorganization proceedings. These funds can be used at the committee’s discretion to make payments to retirees to subsidize a limited portion of future benefit costs. Additional information will be provided to retirees once Kodak coverage ends.

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The agreement is supported by the debtor’s Official Committee of Unsecured Creditors, and will significantly reduce one of the company’s most substantial legacy liabilities, marking a step towards Kodak’s emergence from Chapter 11.

As of December 31, 2011, the company’s aggregate U.S. OPEB liability exceeded $1.2 billion. OPEB coverage currently costs the company about $10 million a month. Since filing Chapter 11, Kodak has paid 100% of its share of the costs for these benefits, resulting in cash expenditures in excess of $90 million.

The company said that the proposed agreement results in significant cost savings and liquidity enhancement and eliminates the need for costly and lengthy litigation. The agreement is subject to approval by the Bankruptcy Court and is scheduled for a hearing on October 29.

In February, the company asked the court’s permission to end health care benefits for approximately 16,000 Medicare-eligible retirees (see “Kodak Asks to Drop Benefits for Medicare-Eligible Retirees”). The company is facing an employee lawsuit about the bankruptcy and its effect on the company’s retirement plans.

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