Hostess Loots Pension Funds For Operations, Deemed ‘Betrayal Without Remedy’

Commentary | Dying snack brand Hostess has managed to find another avenue to deprive workers of their earnings as the company shutters, admitting that the brand’s executives used employee pension money to pay for operational costs and glossing over the decision in a recent interview.

The Wall Street Journal spoke of Hostess’ practice of looting employee pension funds to pay operational costs in the year leading up to the company’s decision to shut its doors, noting that beginning in August 2011, the flailing brand “used wages that were supposed to help fund employee pensions for the company’s operations as it sank toward bankruptcy.”

Hostess’ failure was at first blamed largely in the court of opinion on unions and increasing worker demands, but as the claim circulated the web following a message on the website for Hostess that the strike forced the Twinkie-maker to shutter, it was more closely examined by web users.

Soon, we learned that despite a cry of poverty when it came to paying wages, the Hostess top execs were taking million-dollar payouts for their role in sinking the brand. And now that a judge has okayed the golden parachutes for those at the helm when more than 18,000 Hostess workers were given pink slips, we’ve learned that the employee pension contributions were lifted to pay bills and likely won’t be returned in the mire of bankruptcy.

As the decision to loot pensions and walk away with million-dollar payouts is widely decried with little recourse for Hostess workers, the current and former CEO of the ailing brand both profess no knowledge of the decision, or refuse to talk. Former Hostess CEO Brian Driscoll told workers last year that the company would “temporarily suspend” pension contributions in what was a “necessary bridge” to allow Hostess to recover — and as we now know, the brand began bankruptcy proceedings just scant months later.

Current Hostess CEO Gregory Rayburn said that “whatever cash it had was being used to fund the business, to keep it afloat,” carefully neglecting to mention that it appears no afloating was actually achieved by the looting. Rayburn adds that despite the fact Hostess execs likely had the best intentions when taking money from pensions to fund business operations, it wasn’t his decision — he says:

“Whatever the circumstances were, whatever those decisions were, I wasn’t there.”

James P. Baker is a partner at Baker McKenzie LLP, a firm that specializes in benefit law but isn’t connected to the Hostess case. Baker concedes that such actions are legal and likely without recourse, explaining:

“It’s what lawyers call betrayal without remedy … It’s sad, but that stuff does happen, unfortunately.”

Lawyer for the union blamed by Hostess execs for the brand’s closure, Jeffrey Freund, confirms that the “company’s cessation of making pension contributions was a critical component of the bakers’ decision” to strike. Freund says that before January’s bankruptcy filing, Hostess stiffed the workers $22.1 million in pension payments, racking up an additional $3-4 million per month in missed payments that bankruptcy ensures won’t have to be paid back to the workers who have earned it.

The WSJ piece concludes:

“It might have been ‘impossible’ to undo the agreements that called for Hostess to make pension contributions using employee money, Mr. Rayburn added. One reason: Hostess could have been too short of cash to make up the difference, though he said he isn’t sure.”

Do you think that a Chief Executive Officer’s compensation is sufficient for him to be “sure” about a circumstance like the Hostess workers’ earned pensions? Should executives be able to retain such large payouts if workers get the shaft on earned compensation?