A sorry scandal

23 Jul 2004 By Edward Hadas

If Federal Mogul had provided enough, its UK pensioners would not be losing half their pensions. The new law will not resolve this problem. The lessons: Trustees should be more assertive. Companies should be less reckless. And more probelms should be expected. The lessons: Trustees should be more assertive. Companies should be less reckless. And more problems should be expected.

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The administrator of the UK defined pension funds for Federal Mogul and its T&N subsidiary have proposed that the funds be wound up as part of the parent company's bankruptcy proceedings. Some 40,000 employees are affected.

The funds have £1.2bn in assets, but £2bn would be required to pay the promised benefits. If the wind up goes ahead as suggested, typical pension payments would be cut by as much as 50%.

Federal Mogul acquired T&N in 1988. The company, which had boasted of its big, hairy, audacious goal of quintupling sales, filed for bankruptcy in October 2001. US pension benefits have subsequently been reduced substantially.

The Maxwell pension scandal in the early 1990s involved a £458m transfer of pension fund assets to investments in unprofitable group companies.

The proposed UK pension bill provides for the establishment of an insurance fund, to be funded by a levy on pension funds. The expected funding rate is £300m annually. In the last three years, an estimated 60,000 UK employees have been affected by defined benefit pension fund shortfalls.

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