The federal lawsuit alleges the California-based trucking and air -freight conglomerate CNF and its actuary, Pennsylvania-based Towers, Perrin, Forster & Crosby, failed to transfer enough money to Consolidated Freightways’ pension plan when CNF spun Consolidated Freightways off as a stand-alone, unionized company in December 1996, according to the Portland (Oregon) Oregonian. Because of the underfunding, some 500 ex-workers lost millions of dollars in benefits, according to the suit.
In determining how much pension money to set aside for the spinoff, CNF and its actuary assumed a rate of return on pension benefits of 7.08% and a retirement age of 64, the lawsuit says. Steven Tindall, a plaintiffs’ attorney, alleged that CNF should have used a more conservative rate of return and a lower retirement age, since it allegedly didn’t expect Consolidated Freightways to stay in business much longer. “The result of these two aggressive assumptions are that too little money got put into the (Consolidated Freightways) spinoff pension plan,” Tindall told the newspaper.
The suit alleges CNF knew when it spun off Consolidated Freightways that its subsidiary was losing money and would not survive more than a few years. “They were sending the old dog out to die,” Tindall told the Oregonian. According to the lawsuit, CNF reported that Consolidated Freightways’ unionized predecessor, CF MotorFreight, posted operating losses of $81 million in 1994 and 1995. Consolidated Freightways also lost $73 million in 1996 before being spun off.
Vancouver-based Consolidated Freightways shuttered its doors on Labor Day 2002, laying off 15,500 workers nationwide, and is liquidating assets under bankruptcy protection.
The lawsuit, filed in San Jose, Calif., seeks a court order for CNF and Towers, Perrin to restore the lost benefits. If the court certifies the case as a class action, plaintiffs’ attorneys estimate as many as 500 Consolidated Freightways retirees could join the lawsuit.
Earlier this year, federal pension insurer, Pension Benefit Guarantee Corp. (PBGC) took over Consolidated Freightways’ pension fund after determining it was about $276 million short of its $504 million in obligations (See PBGC Assumes Consolidated Freightways’ Pension Plan ). As a result, an estimated 8% of 6,100 retirees saw their benefits reduced. Many were retirees who had taken advantage of a rule that allowed them to retire as early as age 55 if they had 30 years of work with the company, the newspaper reported.
According to the lawsuit, lead plaintiff Thomas Paulsen, Consolidated Freightways’ former president and chief operating officer, retired in September 2002 after 36 years with the companies. Paulsen saw his monthly pension benefit drop from $9,755 to $1,946 after the PBGC took over. “A lot of people have had their lives impacted pretty damn dramatically,” Paulsen told the Oregonian. Two of the other five plaintiffs, Robert Bowden of Lake Oswego and Robert Newell of Portland, say they’ll have to sell property to scale back their lifestyles because of the benefit cuts.
The suit also names Stephen Richards, James Tener and Robert Wrightson, Consolidated Freightways’ former chief financial officer, as defendants. All three served on Consolidated Freightways’ pension plan committee.