McClatchy Cuts Back on Executive Benefits Due to Pension Distress

The media company has asked for legislative relief and is in discussions with the PBGC about a distress termination of its defined benefit (DB) plan.

Media company McClatchy disclosed that it will not be releasing certain nonqualified supplemental executive retirement benefits to a small number of participants at this time as it continues to address its long-term liquidity pressures arising from its qualified pension obligations due in the third quarter of 2020. 

In reporting its third quarter 2019 results, the company said it submitted an application for a waiver of the minimum required contributions to its defined benefit (DB) plan with the IRS for plan years 2019, 2020 and 2021.

As of March 31, 2019, the latest measurement date of the plan, it held assets of $1.32 billion, of which approximately $580 million came from voluntary contributions made by McClatchy over and above the minimum required contributions. Still the plan was underfunded by approximately $535 million as of March 31, 2019, with approximately $124 million of contributions due over the course of 2020. “The amount due greatly exceeds the company’s anticipated cash balances and cash flow given the size of its operations relative to the obligations due, and creates a significant liquidity challenge in 2020,” the report said.

McClathy disclosed that the IRS has declined to grant the company’s three-year waiver request. The company said, “Management continues to explore other means of pension relief including working productively with many members of Congress in search of legislative relief that would mitigate the burden of the minimum required contributions. The company and its advisers are exploring all available options to address these liquidity pressures.”

At the time, Craig Forman, McClatchy’s president and CEO, noted that the company’s current workforce of nearly 2,800 employees represents about one in ten pensioners. Those who joined the company in the last 10 years do not participate in a plan they are working to support—one that was frozen to new participants in 2009.

“Since there can be no assurance of a legislative solution to the company’s liquidity challenges,” the company said it has started discussions with the Pension Benefit Guaranty Corporation (PBGC) and its largest debt holder, “for the purpose of exploring other alternatives that would provide a more permanent, rather than temporary, solution to its qualified pension obligations, nonqualified pension obligations and capital structure.” It is in discussions with the PBGC regarding a distress termination, allowing it to reach payment terms with the PBGC that will relieve the current liquidity pressures of the minimum required contributions under Employee Retirement Income Security Act (ERISA). The report said, “There can be no assurance that the ongoing discussions with PBGC, its debt holder, and other parties will result in any restructuring transaction, that the company will obtain any required stakeholder consent to consummate a restructuring transaction, or that the restructuring transaction will occur on a timely basis or at all.”

Regarding the withholding of certain nonqualified supplemental executive retirement benefits, Elaine Lintecum, the company’s chief financial officer, said, “This decision is not taken lightly, but at a time when the company is actively negotiating the future of the qualified pension plan, it would be inconsistent with our culture to continue payments on the non-qualified plans.”