In a proposed settlement with an ad hoc group of retired salaried employees, Hawker Beechcraft will set aside a total of $250,000 a year for 10 years to cover shortfalls that recipients represented by the ad hoc group would lose as a result of the company’s bankruptcy reorganization.
The settlement covers about 70 former salaried employees whose benefits would be reduced after the Pension Benefit Guaranty Corp. takes over their pension plan.
The losses come because the employees receive benefits that exceed the PBGC caps on how much a retiree can collect in a year.
The PBGC will pay retirement benefits up to a legal limit of about $56,000 a year for a 65-year-old, according to the agency.
Under the settlement, participants who retire after the end of this month would not receive any portion of the funds until the age of 65, according to a court filing.
Hawker Beechcraft also agreed to pay $80,000 for fees and expenses for legal counsel incurred by the ad hoc retiree committee, the court filing said.
The deal is subject to approval by a U.S. bankruptcy judge. A hearing regarding Hawker Beechcraft’s pension plans is set for Thursday.
“We’re certainly pleased to have reach the agreement in principle,” said Nicole Alexander, Hawker Beechcraft spokeswoman. Details of the settlement are still being worked out.
Hawker Beechcraft filed for Chapter 11 bankruptcy protection May 3 and plans to emerge as a smaller, restructured company in late February.
Under the settlement, the reorganized company will use “commercially reasonable efforts to ensure that any buyer of all or substantially all of the reorganized debtors’ assets assumes the Salaried Plan Participant Shortfall Funding,” the filing said.
Hawker Beechcraft will send customized notices to retirees in the salaried plan who it believes will see their benefits reduced after the PBGC takes over.
The ad hoc committee opposed the PBGC’s takeover, saying benefits would be substantially reduced if the judge approved the deal. The committee has until the time of the hearing Thursday to submit any objections to the settlement, the filing said.
Hawker Beechcraft has asked the court to terminate two of its three retirement plans — the salaried plan and a base retirement income plan — and for the PBGC to pay the benefits to vested participants instead of the company.
Other than the small ad hoc group of retirees in the pension plan, the remaining retirees in the plan who are vested under PBGC guidelines will receive the full amount of benefits at age 65, according to information from the company.
Current employees will not earn additional benefits under the salaried plan, but they will receive a combination of vested benefits guaranteed by the PBGC plus benefits under a new defined contribution plan.
Retirees in the base plan, meanwhile, will receive the full amount of benefits that have already vested under the PBGC guidelines, which pays full retirement benefits at age 65.
Hourly workers represented by the Machinists union reached an agreement with the company regarding their retirement income plan earlier in the process.
Under that agreement, accruals were to be frozen at the end of 2012, and a new Retirement Income Savings Plan was to be created and continue to operate after Hawker Beechcraft emerges from bankruptcy.
The PBGC is a federal agency that administers pension plans for companies that can’t meet their financial obligations to retirees. The agency pays the benefits, with caps, when an employer is no longer able to pay.
The agency and Hawker Beechcraft agreed in principle in August for the PBGC to take over the administration of the two plans, subject to the judge’s approval.
The two pension plans to be terminated are 49 percent underfunded and collectively have more than 9,500 participants, according to the PBGC.