The US Department of Labor (DoL) discovered the interest underpayment problem during the agency’s probe of Polaroid’s handling of its pension and other benefit plans, according to a Boston Globe story.
‘The underpayments allegedly occurred because Polaroid failed to use the interest rate set forth in the plan document when it credited interest to participants’ accounts for plan year 1998, but instead used a lower interest rate,’ DoL Secretary Elaine Chao in a court statement. ‘As a result of the failure to use the correct interest in calculating each participant’s account balance, participants have received improperly reduced plan distributions.’
The bad math affected the accounts of about 3,300 Polaroid employees who left the company and received lump-sum payments from the pension plan, according to Chao’s statement.
Another 2,000 plan participants who haven’t yet received distributions from the plan were also paid the wrong interest rate for 1998. The participants were paid interest of 6.37% in 1998, instead of 6.66% as specified, the Globe story said.
The Globe said the newly discovered underpayments were another blow to Polaroid employees and retirees, who have seen many of their benefits stripped away as Polaroid’s finances deteriorated last year and the company filed for bankruptcy protection from creditors in October.
Last summer, the company raised the amount retirees would have to pay for health benefits promised to them when they left the company. Then, on the eve of the bankruptcy filing, the company eliminated health and life insurance benefits for retirees. Benefits to employees on long-term disability were also cut, the Globe said.
In July, Polaroid was sold to a group of investors led by Bank One of Chicago. That created a new company that emerged from bankruptcy and continues to operate in the firm’s traditional instant film markets. The original firm, which is negotiating final payments on debts and other administrative duties for the ‘old’ Polaroid, is now called Primary PDC Inc.
But the change of ownership has created more uncertainty for retirees. The buyers refused to take over Polaroid’s underfunded pension plan. The fund’s assets shrank from $900 million as of October 1, 2001 to $657 million earlier this month, in part because many people leaving the company in the past 18 months took their pension benefits in a lump-sum payment, the Globe story said.
Because the new buyers declined to assume the pension plan, it was taken over by the Pension Benefit Guaranty Corp. PBGC protects employees’ pensions, but only up to certain limits.