PBGC Goes After Snack Food Co. for 'Unlawful' Investments

June 11, 2009 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC) has asked to intervene in a suit by participants in the pension plan formerly sponsored by Tom's Foods Inc., as the agency attempts to recover about $3 million from "unlawful" plan investments.

The nation’s private-sector pension insurer filed legal papers in Columbus, Georgia with the request to get involved in the participant suit against the defunct Columbus-based snack food maker.

According to the PBGC announcement, 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 agency’s legal papers allege that the plan’s fiduciaries, members of the Tom’s Foods board of directors, and the pension plan’s investment committee improperly directed the plan to invest $3.9 million of its assets in junk bonds issued by Tom’s Foods Inc.

Previous Attempts

The PBGC said the Tom’s 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 pension agency complaint charged 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 said.