Make Good on Exec Life Losses, Firms Advised : Insurance: A Labor Department official said companies that replaced pension plans with annuities would be “smart” to make full restitution to retirees.

WASHINGTON —  A top Labor Department official Thursday warned companies that replaced their pension plans with annuities from Executive Life Insurance Co. to make up losses suffered by their retirees or face possible investigations and lawsuits by the federal government.

In his toughest comments yet on the issue, Assistant Secretary of Labor David G. Ball said the companies would be “smart” if they made up the 30% cutback in pension annuity payments ordered by California Insurance Commissioner John Garamendi when the state seized control of Los Angeles-based Executive Life in April.

“It’s not good enough to (make up the losses) for just a few months; it has to be permanent restitution,” Ball told reporters after a Senate hearing into the impact of Executive Life’s financial problems on retirees.

The Labor Department recently sued two companies that bought Executive Life annuities, and Ball previously had said he will be contacting other affected employers about their purchase of the annuities. But by virtually insisting that the companies compensate former workers for losses arising from Executive Life’s problems, Ball staked out a more aggressive position.

The companies’ responses will be an important consideration in the government’s decision whether to open full-fledged investigations leading to possible lawsuits, Ball said.

“We’re bringing the greatest possible pressure” on companies to make up the financial losses of their former workers, said Ball, head of the Labor Department’s Pension Benefit and Welfare Benefits Administration. “The thing we care about most is retirees getting their money.”

The companies have insisted that they shouldn’t be blamed for the losses, noting that Executive Life appeared to be in good financial shape during its booming growth period in the mid-1980s. That view was repeated Thursday by a lawyer representing 24 companies that bought Executive Life annuities for their pension plans.

“Employers were victims in this situation,” the lawyer, Barry Homer, said in a telephone interview from San Francisco.

In the 1980s, Executive Life had the highest ratings from the most reputable independent rating agencies in the country, he noted. “Judgment is being made now based on hindsight,” said Homer, an employee benefits specialist representing the Committee of Companies Concerned for the Annuities for Retired Employees.

“It is unreasonable to assume that each employer ought to be liable for any losses,” he said. “You ought to look where the blame lies--in the management of Executive Life, the professionals who did their accounting and the insurance rating agencies.”

Sen. Howard M. Metzenbaum (D-Ohio), who conducted Thursday’s hearing of the labor subcommittee of the Senate Labor Committee, released a list of 50 firms where pension plans were replaced by Executive Life annuities.

“There are many more than 50,” Ball said after the hearing, indicating that he expects a lengthier list soon from California officials overseeing Executive Life.

Ball estimated that 75,000 workers and retirees are covered by Executive Life annuities. Their firms took millions of dollars in surplus funds from their pension plans during the 1980s and replaced the plans with annuities from Executive Life. The annuities are designed to provide monthly payments to the retirees.

The Labor Department contends that firms may have violated their fiduciary responsibilities--the duty to act carefully when handling someone else’s money--in picking Executive Life to handle pension payments.

The department recently sued Maxxam Inc. and its subsidiary, Pacific Lumber Co. of Scotia, Calif., and MagneTek Inc. of Los Angeles, charging that they acted “imprudently” in buying Executive Life annuities.

Some companies--such as Revlon Inc. and Blue Cross of California--have been sending retirees checks that make up the 30% cut in pension payments ordered by Garamendi. But there is no general pattern, and many firms have taken no immediate action.

California ordered the payment reduction to preserve the financial health of Executive Life while officials try to find a buyer for the company, which was hurt by its heavy investments in high-yielding junk bonds.

Ball also disclosed that the Labor Department is worried about the financial health of at least a dozen other insurance companies that sold annuities to replace pension plans. But he emphasized that these insurers are making pension annuity payments and are functioning normally.

He declined to name the insurance carriers, saying, “I do not want to start a run on the bank.”

Meanwhile, California insurance regulators said Thursday that they are close to concluding negotiations with Altus Finance on bidding for Executive Life. In addition to Altus, which is 60% owned by the French state-owned Credit Lyonnais bank, two other potential bidders are waiting in the wings.

If Altus produces an acceptable bid for Executive Life, the other companies will be given 60 days to better it, Deputy Commissioner Tom Epstein said. After that, the state would recommend a choice to Superior Court Judge Kurt J. Lewin, who is overseeing the state’s conservatorship of the company.

Firms With Executive Life Annuities

Executive Life Insurance Co. sold annuities to scores of companies to provide retirement benefits for about 75,000 workers. But benefits were reduced after Executive Life failed. The Labor Department is pushing companies to make up the lost benefits. Here is a list of firms with the most workers covered by Executive Life annuities: Company: Participants* McCrory Stores**: 14,889 Cannon Mills: 12,279 Pay N Save: 9,261 Revlon: 9,468 RJR Nabisco***: 5,727 Bulova Watch: 3,636 Ryder/PIE: 3,160 Smith International: 3,153 Raymark Corp.: 2,181 Pacific Lumber: 2,753 MagneTek: 1,916 Southern Baptist Hospital: 1,543 Walter Kidde/Grove Mfg.: 1,420 AFG Industries: 1,335 National Forge Co.: 1,081 Clinton Mills: 1,018

* Covered workers and retirees.

** For stores in New York, Ohio and Pennsylvania.

*** Includes Aminoil, Del Monte, Kentucky Fried Chicken and RJR Archer subsidiaries.

Source: Senate Labor Committee