PBGC Seeks Recovery on Behalf of Tom's Foods Inc. Pension Plan
FOR IMMEDIATE RELEASE
June 11, 2009
WASHINGTON-The Pension Benefit Guaranty Corporation (PBGC) today announced it has filed a motion to intervene in a suit by participants in the pension plan formerly sponsored by Tom's Foods Inc., the defunct Columbus, Ga.-based snack food maker. The suit in U.S. District Court in Columbus seeks to recover about $3 million in plan assets lost due to unlawful investments by the plan's fiduciaries.
The action in which the PBGC is seeking to intervene names as defendants Rolland Divin, formerly chief executive officer of Tom's Foods and chairman of the pension plan's investment committee, Michael E. Heisley, the company's former chairman, and Andrew G. C. Sage, II, a former member of the company's board of directors. The PBGC intends to add other defendants.
The Tom's Foods Pension Plan terminated in 2007, resulting in a claim of $45 million against the federal pension insurance program for unfunded guaranteed benefits earned by the plan's 2,600 covered workers.
The PBGC's filing alleges that the plan's fiduciaries, members of the Tom's Foods board of directors and the pension plan's investment committee, violated their duties of loyalty and prudence to plan participants by directing the plan to invest $3.9 million of its assets in junk bonds issued by Tom's Foods Inc. The board had made several previous attempts to cause the plan to invest in securities of Tom's Foods, which were rebuffed by the plan's investment committee. Following a change in the composition of the committee, the plan purchased the bonds in June and October of 2003.
The complaint alleges further that the fiduciaries knew or should have known in 2003 that the company was insolvent and very likely to default on the bonds when they were to come due on November 1, 2004. Tom's Foods defaulted on the bonds on that date, entered chapter 11 bankruptcy on April 6, 2005, and sold all of its operating assets on October 21, 2005 to an affiliate of Lance Inc. From the bankrupt estate, bondholders - including the pension plan -- recovered roughly 22 cents on the dollar. The pension plan's share of the total distribution was $873,653.
The PBGC seeks a judgment against the fiduciaries to pay the plan for losses resulting from investment its assets in violation of federal pension law, plus income the plan would have realized if those assets had been prudently invested, and to pay the PBGC for costs of litigation.
The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 29,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns.
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PBGC No. 09-37