DAYTONA BEACH -- More than 1,100 current and former employees of the News-Journal Corp. will have to rely on the government for their pensions after a judge refused to set aside $14.5 million from the company’s recent sale to strengthen its underfunded pension plan.
The Pension Benefit Guaranty Corp., a federal insurance fund in Washington, D.C., announced Tuesday it has taken control of the News-Journal Pension Plan, which cover employees of the Daytona Beach News-Journal and its six Pennysaver shopping guides. Monthly pension checks being paid to about 450 retirees will continue without any interruption, the PBGC said.
The PBGC had been negotiating with the newspaper’s receiver for nearly a year on terms for taking over the pension plan. The plan holds investments currently valued at $28.2 million, but requires $43.6 million to meet its long-term obligations, according to PBGC’s actuaries.
After the publications were sold in March, the insurance fund filed claims totaling $26 million against the sales proceeds, but earlier this month agreed to reduce its demands to $14.5 million.
However, U.S. District Judge John Antoon II, who has been overseeing the newspaper’s finances for the past year, ruled Aug. 13 in Orlando that nearly all of the News-Journal Corp.’s remaining cash and real estate, estimated at $40 million, should go to Atlanta-based Cox Newspapers, a former minority co-owner of the company, rather than to the PBGC.
The payment will satisfy just a portion of the $155 million that Cox won in litigation against the Davidson family, the paper’s prior majority owner. The judge said Florida law required Cox’s award to be given priority over the PBGC claim.
Eight of the newspaper’s former employees and retirees, filing as interveners in the Cox vs. News-Journal lawsuit last year, had urged the court to put some of the corporation’s surplus funds into the pension plan to offset losses the plan suffered in the 2008 stock market decline. However, Antoon declined to impose any new pension-funding requirement beyond that contained in existing federal law.
James Hopson, hired by Cox to monitor the Davidson management and later appointed by Antoon as the corporation’s receiver, said in a court filing the paper had met all its pension obligations under the federal tax code.
In a related matter, the interveners also challenged Hopson’s decision in May to cancel $5,000 paid-up life insurance policies that for many years were given to employees upon their retirement. Antoon ruled the policies were not covered by the pension plan and the receiver was free to cancel them. The cancellation saved the paper about $700,000, Hopson said.
Some retirees expressed mixed feelings about the PBGC takeover.
“I’m glad the PBGC finally stepped in to preserve our pensions,” said Thomas S. Brown, a retired business writer and one of the interveners. “But it’s too bad that Cox, which made many millions from the efforts of News-Journal employees over the years, chose to dump the newspaper’s pension obligation onto the government. I see it as one more case of corporate welfare.”
Besides safeguarding pensions, the PBGC takeover will help some News-Journal retirees in the 55-64 age bracket pay for their health insurance. Retirees who pay at least 50 percent of their insurance costs out of pocket are now eligible for up to 80 percent reimbursement through the government’s Health Care Tax Credit program.
The News-Journal Pension Plan became an orphan after the new owners of the paper, Halifax Media, refused to take financial responsibility for the plan, leaving it in the hands of the receiver. Hopson then petitioned PBGC to take it off his hands through a “distress termination” process.
Under PBGC’s trusteeship, News-Journal retirees who are 65 or older are insured for pension benefits of up to $54,000 annually. However, the newspaper’s pensions, which were frozen in 2007, are actually much lower, in most cases less than $10,000 a year.
The defined-benefit pension plan was put in place by the Davidson family decades ago. The Davidsons first came under legal attack by Cox in 2004 when the Atlanta chain successfully argued the family had “wasted” millions of dollars in corporate revenue on nonprofit music groups.
Cox was particularly incensed when it learned the News-Journal had paid $13 million to put the newspaper’s name on a performing arts center founded by the late Herbert “Tippen” Davidson Jr., the company’s chief executive. The Davidsons, booted from management in 2008, contended the arts spending enhanced the newspaper’s reputation in the Daytona area and was a legitimate promotional expense.
The PBGC said assumption of the News-Journal plan will increase its own $22 billion in liabilities by about $15 million. However, it has about $70 billion in assets to offset the liabilities.
The insurance fund plugs the gap on insolvent plans by collecting insurance premiums from 22,000 private plans and using earnings on its investments. A s of mid-2009, it was operating more than 4,000 pension plans covering 1.4 million people.
More than 400 News-Journal employees were fired from the News-Journal and all of its news bureaus, including the one on Canal Street in New Smyrna Beach, were shut down as a result of the litigation between the former ownership and Cox and later when Redding assumed control of the newspaper.
