Thursday, December 11, 2008

Thing One and Thing Two

I've been trying to find info on a couple of things regarding Tribune's bankruptcy filing. Here's what I have found out so far:

ESOPs -- Seem to be safe for now, but that's only because the ESOP is barely a year old and has no distributions. As mentioned in earlier posts, the ESOP is great for Tribune because it provides a substantial tax benefit. Tribune does not have to pay corporate taxes because it is employee owned. There's also another benefit: ESOPs can borrow from banks, and both the interest and principal payments are tax deductible for the corporation, substantially reducing borrowing costs. ESOPs are not necessariyl great for employees, however, since ESOPs are totally invested in the company, in this case a bankrupt one.

The Wall Street Journal published the best explanation I've seen on this subject, titled "Tribune Filing Exposes Risks of ESOPs." See

Health benefits to terminated employees -- The bankruptcy court says health benefits to employees who took buyouts will continue for up to three months. That would extend to the second week of March, based on the date of Tribune's bankruptcy. After that, you may be on your own. I would even argue that this could change before then, if the financial situation continues to deteriorate, as is expected. See the Baltimore Sun's story about Thursday's bankruptcy hearing here,0,3266475.story. By the way, note that the correct term is terminated, not laid off.

401Ks -- They are safe, although Tribune stopped contributing to the 401K plan earlier this year.

Defined pension benefits -- Tribune has a defined pension plan that was phased out some years ago. It appears to be safe for now. However, the thing to watch is whether Tribune turns the pension plan over to the Pension Benefit Guaranty Corp., as other bankrupt companies have done in the past. If this were to happen, folks who earned the highest salaries under the plan would be most affected. The pension plan has more than $500 million in surplus assets. Tribune has used about $60 million of this for pension benefits for departing employees. See the Wall Street Journal story referenced above. Full disclosure: As a former Tribune employee, I am scheduled to receive a small pension when I reach retirement age.

Severance payments -- If you are owed severance payments or deferred compensation, get in line with other creditors. Tribune said it would discontinue these payments immediately.

Bear in mind that when a company seeks protection under bankruptcy, all this remains fairly fluid and is subject to change at any time. A second bankruptcy hearing is set for January 5.

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