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CALIFORNIA / News and Insight on Business in the Golden
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High Court to Settle Hughes Pension Feud

April 28, 1998|DAVID G. SAVAGE | TIMES STAFF WRITER

WASHINGTON — The Supreme Court on Monday agreed to hear an appeal filed by Hughes Aircraft Co. in a case involving whether retirees from the Los Angeles-based aerospace firm are entitled to claim part of an estimated $1.2-billion surplus that accumulated in the company pension fund.

The decision, expected early next year, could have a profound impact on how companies handle pensions in the future. The law remains unclear on the rights of retirees to challenge changes in the pension plans of their former employers.

Five retirees sued Hughes on behalf of 10,000 workers who were in the plan as of 1991. Their mandatory contributions over the years had helped build the surplus, they said.

After 1989, the company changed the pension plan and quit making its own contributions to the fund, they said. Instead, the firm used some of the surplus money to pay for buyouts and early retirements, the lawsuit claims. When General Motors Corp. acquired Hughes, its pension plan was underfunded by $7 billion, and the lawsuit suggests that some of the Hughes money was diverted to the auto maker's depleted retirement fund.

In 1974 Congress passed a law to protect pension rights, and the Hughes retirees said that law requires the company to use pension funds for "the exclusive benefit" of the workers who paid into the fund.

U.S. District Judge Richard Gadbois in Los Angeles initially threw out the suit on grounds that the company was entitled to amend its pension plan. Retirees are "entitled to the defined benefit" promised in their pensions, but they have no "right" to surplus assets in the fund, he said.

But the U.S. 9th Circuit Court of Appeals revived the suit on a 2-1 vote last year and cleared the case for trial. Judge Harry Pregerson, writing for the majority, said Hughes had terminated its original pension plan when it stopped making contributions and began to divert money elsewhere. At that point, the retirees who paid into the fund were entitled to their fair share of the surplus, he said.

If they can prove their claims at trial, the 10,000 retirees are entitled to the money, the appeals court concluded.

Independent counsel Kenneth W. Starr, acting as a private attorney for his firm, Kirkland & Ellis, filed the appeal for Hughes. He claimed that the Hughes retirees were seeking "a pot of gold to which they are not entitled."

The Supreme Court justices will schedule oral arguments in the case (Hughes Aircraft vs. Jacobson, 97-1287) in the late fall and issue a ruling a few months later.

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