The employee ESOP looks primed to take the biggest hit, since they own all the remaining equity in the company. I'm sure there's a special place in hell reserved for Sam Zell, the genius who took it private and made his own debt senior to the ESOP. On the other hand, DealBook reports that the pension fund is actually overfunded:
Tribune's ESOP is separate from the pension plans for Tribune workers that existed before the buyout. It is not clear how those pension plans, which Tribune has said are actually overfunded, would fare in a bankruptcy case.
In the months leading up to the deal, David Hiller, the publisher of the Tribune-owned Los Angeles Times at the time, reassured employees that "existing pension plans and 401(k)s" were "fully protected," according to an e-mail cited the lawsuit.
What happens to an overfunded pension plan in the event of a bankruptcy? The major news stories tend to focus on underfunded plans whose parents lack the cash flow to bring back to par. Do overfunded plans see the excess doled out to creditors, or do they get to keep the extra booty? And does that suggest a strategy for employee owned firms in trouble?
Update: Yup, it's official.
I suspect that one of the problems is figuring out what "under-funding" means. When there is an extant company then it can insure against a rare and unforeseen drop in value of the retirement plan -- e.g. from a "black swan". When there is no parent company then it is complicated to argue what is the threshold, especially when the creditors have an incentive to be aggressive and the employees have an incentive to be conservative (and only the employees bear the cost of a mistake that result sin under-funding).
So I am not sure that there is an easy answer here.
Now, if it is a 401(k) then this is just the contributions of the employees -- it is easy to see how this could be under-funded (the company delayed making contributions or borrowed against the 401(k) so that it no longer has the value of thr assets contributed to it) but it typically doesn't become over-funded for the same reason that I don;t see an over-funded bank account.
As I recall, a company can pull the overfunding out of a pension trust by paying a 50% excise tax to the Feds. Some did this and replaced their defined benefit plans with 401K plans. [My employer didn't want to pay the excise tax, so he let the overfunding ride - right through the dot.com bust and now he has to put up far more cash each year to get to full funding than if he had paid the excise tax and terminated or frozen the pension plan. ]
An over-funded (whatever that means, and I doubt that it means much any more) pension plan is an asset on the books of the company, thus creditors will get it in the case of a bankruptcy is my guess.
"I'm sure there's a special place in hell reserved for Sam Zell."
Except that Hell doesn't exist. Nothing bad is going to happen to Sam, except that he won't be the legendary bigshot he planned on being. Lazy comments like yours are a way of avoiding the fact that incompetent bosses rarely pay for their mistakes. Their employees do. It's called capitalism. I support it, but I don't whitewash it.
Would you rather he stood in line and held his hand out for a bailout?
The Tribune? Never mind the Tribune, what about the New York Times??
The Times just had to morgage its beautiful building to make payroll for goodness sake, and its stock is approaching the toilet.
Sure, maybe the times shouldn't get a penny of the taxpayers money, Atlantic Readers might say, but the government should still DO SOMETHING!
Here's a thought: Early next year the new President can resurrect the NYT to its "former glory" by bestowing the Presidential Medal of Freedom on Tom Friedman; rehabilitating Friedman (who lost a big chunk of his audience and his gravitas for his early support of the Iraq war), is the NYT's heritage brand, along with Maureen Dowd. Fixing Friedman sells newspapers, and gets the Gray Lady solvent again (the paper, NOT Maureen, she is already fairly solvent!).
Or we can just sit back, watch the Times disappear, and read blogs, the Drudge Report and stuff. Cool.
The Tribune Co. has now filed for bankruptcy. It will be interesting to see what happens now. Hopefully Sam Zell will live in a cardboard box under the highway. As far as the Old Grey Lady goes. They did indeed mortgage their building, as Bob W. said. That doesn't bode well either.
Newspapers are finished. I was once an everyday newspaper reader, but the internet offers such a vastly superior amount of quality information and opinion that I only read papers when I visit my parents who still hold subscriptions. The most loyal readers are dying off every day, and I, at age 42, was a relatively rare paper reader for my age cohort.
Now I am filled with schadenfreude!
Am I wrong that the property that the NYT is now mortgaging was taken by eminent domain from its rightful owners?
I don't believe that the plan will "get the excess booty." There's really no point to doing that anyway. A defined benefit plan's purpose is to, well, provide a defined benefit to its participants. If the plans are truly "overfunded", they will be terminated, participants will get benefits in accordance with the formulas established in the plan document (likely a lump sum or an annuity purchased from a third party in the case of termination), and the leftover will go back to the company with some tax penalties taken out for good measure. The benefits will need to be paid first or there will be prohibited transactions that will trigger a whole lot more mess than anybody should want to deal with.
The problem, of course, is that a plan that was overfunded at the end of 2007 may not be overfunded at the end of 2008--big market decline and all. The "overfunding" is an actuarial calculation and may have been based on all kinds of flawed assumptions about rates of return. If the plan turns out to be underfunded, they'll probably file for a distressed termination. PBGC would take over the plan with caps on the benefits that might be below the plan's specified benes.