Hostess Brands Inc. bankruptcy posed risk to other pensions

When Hostess Brands Inc. filed for protection under chapter 11 of the bankruptcy law in 2012, it posed risk to other pensions and medical charges for its employees as one of the the driving reasons behind the filing. At the time, the company was involved in a struggle with workers’ unions over a new contract that would have cut wages and benefits. The union rejected the offer, and reported that the company stopped paying workers’ pensions in 2011.

Hostess’s bankruptcy filing caused significant concern among workers at another company, Ottenberg’s Bakery, a family owned company in Maryland, with which it shared a pension plan, according to Bloomberg Business. Under a multiemployer pension plan, pensions are paid into large investment pools shared among multiple employers. These plans are considered to be a lower risk than single employer plans, because even if one company fails, the pensions are guaranteed by other employers paying into the same pool.

About 10.4 million Americans’ retirement plans are tied to multiemployer pension plans, according to the news source, but after recent economic distress and deregulation, the funds face a combined shortfall of approximately $400 billion. As a result, many are near insolvency.

After the Hostess bankruptcy, Ottenberg’s Bakery was going to be stuck footing the bill for both companies’ employees – an untenable position. In an effort to rectify the situation, the U.S. government saved the benefits of Ottenberg’s employees last week by sacrificing the pensions of Hostess’ drivers, who will now get a reduced payout that the government will finance, reports Bloomberg.

In the 40 years that the Pension Benefit Guaranty Corp. has existed, this is only the third time that it has carved up a fund, according to the news source.