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Regulation

Appeals Court Rules Against Just Born in Pension Dispute

Ruling says candy maker can’t block new workers from pension without penalty.

By Michael Katz

A federal appeals court ruled that candy company Just Born, which has been looking to end pension contributions for new employees, could not block workers from its pension plan without paying a penalty.

The ruling by the US 4th Circuit Court of Appeals affects several hundred Just Born production employees, who are members of the Bakery, Confectionary and Tobacco Workers International Union, Local Union 6.

Just Born was appealing a district court’s ruling that required the company to pay delinquent contributions into the Bakery and Confectionary Union and Industry International Pension Fund, as well as interest, statutory damages, and attorneys’ fees. The company argued that the district court misapplied the federal statute governing multiemployer pension funds in critical status.

Just Born and the union had signed a collective bargaining agreement (CBA) governing employment at its Philadelphia confectionary plant from March 1, 2012, to February 28, 2015. The CBA required Just Born to contribute to the pension fund, which is an employee benefit plan and multiemployer pension fund governed by the Employee Retirement Income Security Act of 1974 (ERISA). The contributions were to be paid from the first day an employee starts work, according to the CBA.

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However, while the CBA was still in effect, the pension fund’s actuaries certified it to be in critical status, indicating the fund’s assets and expected contributions wouldn’t be enough to meet its projected future obligations. As a result, the fund’s board of trustees developed a rehabilitation plan as legally required for multiemployer plans in critical status.

Just Born and the union agreed on a revised contribution schedule that also required Just Born to begin making contributions on an employee’s first day of work. The revised schedule also required Just Born to increase its pension fund contributions by 5% annually.

The company had been contributing to the fund under the revised schedule as promised— until negotiations for a new CBA with the union faltered. As part of the negotiations for a new agreement, Just Born insisted that it shouldn’t be required to contribute to the fund for new employees.

The appeals court upheld the district court’s ruling that “Just Born seems to be trying to walk the line” between avoiding the contributions required under rehabilitation plan schedules, while avoiding withdrawal liability by removing itself from the fund by attrition, “making each new hire an effective withdrawal without acknowledging withdrawal in a way that would trigger the withdrawal penalty.”

The appeals court ruled that “Just Born can either withdraw and pay the penalty for doing so, or remain and make the required payments under the Provision; it cannot avoid both obligations.”

Just Born CEO Ross Born said the company was disappointed with the ruling, but will explore its options and next steps, according to the Allentown Morning Call.

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Home > News > Regulation > Pensions Regulator in Talks with Sainsbury’s over Asda Merger
Regulation

Pensions Regulator in Talks with Sainsbury’s over Asda Merger

Sainsbury CEO says proposed £7.3 billion merger ‘strengthens’ pension covenant.

By Michael Katz

The UK’s The Pensions Regulator (TPR) is in talks with supermarket operator J Sainsbury’s pension trustees over the impact its proposed £7.3 billion ($9.9 billion) merger with Asda will have on the companies’ pension plans.

The discussions were spurred by a request from Frank Field, chairman of the House of Commons Work and Pensions Committee, to Sainsbury CEO Mike Coupe that the company get approval for the merger from TPR.

Under the terms of the merger deal, Asda parent Walmart will assume responsibility of Asda’s defined benefit pension plan, pending approval from its trustees.

“This leaves the question of how the deal will affect the J Sainsbury group’s defined benefit pensions schemes,” said Field in a letter to Coupe. Sainsbury’s pension plans had a combined deficit of £974 million in March 2017, according to Field.

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TPR said it expected “any business planning a major corporate transaction to identify if there is potential material detriment to a pension scheme and explain how they will mitigate against that detriment,” according to the Financial Times. “They can then come to us for clearance to gain assurance that we will not use our anti-avoidance powers.”

In his letter, Field inquired about whether the terms of the merger deal included provisions for Sainsbury’s defined benefit pension plans, and what risk analysis has been performed regarding the potential impact on the pension’s covenant, which is an employer’s legal obligation and financial ability to support its defined benefit pension plan.

In a letter responding to Field’s inquiries, Coupe said “our plans take full account of our obligations to our current and former colleagues,” and that “throughout the planning of this transaction, we have considered the impact it would have on our defined benefit pension scheme.”

Coupe also said they brought a member of their pensions team onto the merger transaction team “at an early stage, and we undertook, with the support of our advisors, a review of the impact on covenants,” adding that the proposed merger “strengthens the pension covenant, and thereby protects the long-term interests of around 90,000 Sainsbury’s defined benefit pension scheme members.”

Supporting Coupe’s claims, John Ralfe, an independent pensions consultant, told the FT he believed the Sainsbury-Asda deal could be beneficial for pension participants, saying, “Asda pension scheme members are better off because they are supported by the whole of the Walmart group,” and that “Sainsbury’s pension members would also be better off because they are supported by a bigger company.”

Coupe said  Sainsbury had planned to notify TPR and the full trustee board prior to making a formal announcement, however, news of the merger was leaked before it had a chance to contact the regulator.

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