November 22, 2012

Hostess Gets OK to Begin Winding Down Business; Employees Says They Would Rather Lose Their Jobs Than Put Up with Lower Wages and Poorer Benefits; It's Time to Get a Union-protected Government Job Where There is No Competition and Where Wages, Benefits and Pensions Far Exceed the Private Sector

Hostess gets OK to begin winding down business

November 22, 2012

AP - A bankruptcy court judge on Wednesday approved a request by Hostess Brands Inc. to begin winding down its operations.

The ruling came Wednesday after the maker of Twinkies, Ding Dongs and Wonder Bread failed in last-ditch
negotiations to end a strike by its second-largest union.

Hostess now has the green light to terminate the jobs of its 18,000 workers without risking legal action, and to sell off its brands.

In court Wednesday, Hostess said it needed to begin the liquidation process quickly to take advantage of outside interest in its brands, which a banker said could fetch up to $2.4 billion. That's about how much Hostess generates in annual sales.

The banker, Joshua Scherer of Perella Weinberg Partners, told the court that interest in Hostess' brands has come from companies ranging from regional bakers to major national retailers that have long sold Hostess products.
"This is a once-in-a-lifetime opportunity to get iconic brands separate from their legacy operators," Scherer said during the bankruptcy-court hearing in White Plains, N.Y.
Hostess, based in Irving, Texas, also wanted to quickly shutter its business, because has been spending about $1 million a day in payroll without any income since it halted operations last week.

CEO Gregory Rayburn said the company will send out termination notices to its employees on Wednesday.
"Those employees now need to look for work," he said.
The snack maker's demise was years in the making. Management missteps, rising labor costs and changing tastes culminated in a crippling strike by The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union.

Hostess shut down its three dozen plants late last week after it said the strike by the bakery union hurt its ability to maintain normal production.

Management had said Hostess was already operating on razor-thin margins and that the strike was the final blow. The union meanwhile pointed to the steep raises executives were given last year, as the company was spiraling down toward bankruptcy.
"This is a very hostile situation and in some respects rightfully so," Rayburn said.

Twinkies bakers say they'd rather lose jobs than take pay cuts

November 22, 2012

Reuters - Enough is enough, say bakery workers at Hostess Brands Inc.

After several years of costly concessions, the Bakery, Confectionery, Tobacco and Grain Millers Union (BCTGM) authorized a walk-out earlier this month after Hostess received bankruptcy court approval to implement a wage cut that was not included in its contract.

With operations stalled, the company that makes Twinkies and other famous U.S. brands said last week that liquidating its business was the best way to preserve its dwindling cash. It won court approval on Wednesday to start winding down in a process expected to claim 15,000 jobs immediately and over 3,000 more after about four months.

Interviews with more than a dozen workers showed there was little sign of regret from employees who voted for the strike. They said they would rather lose their jobs than put up with lower wages and poorer benefits.
"They're just taking from us," said Kenneth Johnson, 46, of Missouri. He said he earned roughly $35,000 with overtime last year, down from about $45,000 five years ago.

"I really can't afford to not be working, but this is not worth it. I'd rather go work somewhere else or draw unemployment," said Johnson, a worker at Hostess for 23 years.
With 18,500 workers, Hostess has 12 different unions including the BCTGM, which has about 5,600 members on the bread and snack item production lines, and the International Brotherhood of Teamsters, which represents about 7,500 route sales representatives, drivers and other employees.

Unlike some non-unionized rivals, the maker of Wonder Bread and Drake's cakes had to navigate more than 300 labor contracts, with terms that often strained efficiency and competitiveness, Hostess officials have said. In some extreme cases, contract provisions required different products to be delivered on different trucks even when headed to the same place.

Aside from those so-called onerous labor contracts, Hostess has grappled for some time with rising ingredient costs and a growing health consciousness that has made its sugary cakes less popular. It filed for bankruptcy in January, only three years after emerging from a prior bankruptcy.

Lance Ignon, speaking on behalf of Hostess, said the company recognized how difficult the past few years had been for workers and wished it did not have to ask them for more givebacks.
"But the reality was that the company could not survive without those concessions," Ignon said.
FRUSTRATIONS, COMPLAINTS

Workers had a laundry list of frustrations, from rising healthcare costs to decreased wages and delayed pension benefits. They even cited a $10-per-week per worker charge they said Hostess claimed was needed to boost company capital.
"They have taken and taken and taken from us," said Debi White, who has worked at Hostess for 26 years, most recently as a bun handler at its bread and roll plant in Lenexa, Kansas.

"They have been walking around stomping their foot saying either you give in ... or else we're going to close you now. Well, go ahead, we're tired of their threats," she said. "That's how we feel."
Hostess workers are now scrambling to figure out when their health insurance runs out -- or if it already has -- and where and how to apply for job retraining and unemployment benefits.

Following a summer and autumn spent in labor negotiations trying to find a common path to reorganization, Hostess' management gained concessions from some unions, including the Teamsters.

The fear of thousands of job losses, for its own members and other unions, led the Teamsters to plead with the BCTGM to hold a secret ballot to determine if bakery workers really wanted to continue with the strike, even with the threat of closure.

Teamsters officials complained that bakery union leaders did "not substantively look for a solution or engage in the process," and complained that the BCTGM called for its strike on November 9 without first notifying the Teamsters.

They said that, unlike the bakery union, the Teamsters voted to "protect all jobs at Hostess." Teamsters General Secretary-Treasurer Ken Hall said Wednesday's court approval for liquidation marked "a sad day for thousands of families affected by the closing of this company."

Bakery union President Frank Hurt has said that any labor agreements would only be temporary as Hostess was doomed anyway. The union said new owners were needed to get Hostess back on track and the only way they would return to work was if Hostess rescinded its wage and benefit cuts.
"Our membership ... just had no confidence in this management group being able to run a business," said Conrad Boos, a BCTGM local business representative in Missouri.
Hurt was not immediately available to comment on Wednesday but the union said in a court filing its sole objective was to leave Hostess with "a real, rather than an illusory or theoretical, likelihood of establishing a stable business with secure jobs."

On Wednesday, Hostess' lawyer Heather Lennox said the company had received a "flood of inquiries" from potential buyers for several brands that could be sold at auction, and expects initial bidders within a few weeks.

Pension Benefit Guaranty Corporation

October 3, 2004

Pittsburgh Tribune-Review - The Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures company pensions, pays benefits to 44 million Americans whose pension plans were terminated by their employers.

A host of companies have terminated their pension plans since the mid-1980s and turned them over to the PBGC.

Benefits paid to retirees from terminated plans often fall well short of those promised when the companies established the pensions. In 2004, retirees who received -- or workers due to receive -- more than $44,386, or $3,699 a month, got no more than that when a company dumps a plan on the pension insurer.

People retiring at age 65 whose pensions were terminated in 2004 received up to $3,699 a month, or $44,386 a year. The amount, adjusted annually, is lower for those retiring before 65, such as pilots who must retire at 60.

Annual PBGC benefits are capped at $44,386, even if payments were larger before a company terminated the plan [subject to other statutory limitations, as of 2011, the PBGC insurance program pays pension benefits up to $54,000 per year to participants who retire at age 65].


The Center for Federal Financial Institutions, a think-tank in Washington, D.C. warned in September 2004 that the PBGC could run out of money by 2020. Many companies have terminated pension plans (defined-benefit plans) and substituted profit-sharing plans or (401(k)) pension plans (defined-contribution plans).

Pension plans abandoned by just ten companies make up 63 percent of all claims paid out by the Pension Benefit Guaranty Corp., the government agency that insures private sector pensions. Just two industries, air transportation (33 percent) and metals (27 percent), make up the majority of pension failures, according to PBGC data released last week. But a new type of firm jumped to number two this year.

The 10 Biggest Failed Pension Plans

When the PBGC assumed responsibility for six underfunded pension plans promised to 69,042 Delphi Corp. workers and retirees in July 2009, it became the second biggest pension failure since the PBGC was formed in 1974. The $6.1 billion worth of benefits promised to current and former workers at the automotive parts manufacturer is second only to the $7.4 billion United Airlines pledged to 123,957 employees before the PBGC took over the plan in 2005. Delphi knocked Kaiser Aluminum, which had $0.6 billion in total claims owed to 17,727 pension participants in 2008, off of the top 10 list.

Motor vehicle equipment manufacturers are now responsible for 15 percent of all PBGC claims. Here’s a look at the 10 biggest pension failures ever turned over to the PBGC.

Firm and Year Terminated Total Claims Vested Participants Average Claim Per Person
1. United Airlines (2005) $7.4 billion 123,957 $60,033
2. Delphi (2009) $6.1 billion 69,042 $88,475
3. Bethlehem Steel (2003) $3.7 billion 91,312 $40,021
4. US Airways (2003) $2.8 billion 55,770 $49,337
5. LTV Steel (2002, 2003, 2004) $2.1 billion 83,094 $25,694
6. Delta Air Lines (2006) $1.6 billion 13,291 $123,473
7. National Steel (2003) $1.3 billion 33,737 $37,811
8. Pan American Air (1991, 1992) $0.8 billion 31,999 $26,285
9. Trans World Airlines (2001) $0.7 billion 32,263 $20,717
10. Weirton Steel (2004) $0.6 billion 9,410 $68,064
Top 10 Total $27 billion 543,875 $49,933

Source: Pension Benefit Guaranty Corp.

PBGC paid nearly $4.5 billion worth of ongoing payments to approximately 750,000 retirees and lump-sum payments to 12,000 pension participants in 2009. Another 565,000 individuals are eligible for future PBGC benefit payments.

Unions, Protectionism, and U.S. Competitiveness (Excerpt)

When compared to private sector unions, public sector unions have an even greater negative impact on the middle class. Government unions strip taxpayers of money in order to fund inflated wages and pensions.  Increased demands from government sector unions across the nation are bankrupting states and municipalities. Wisconsin’s Governor Scott Walker was forced to make huge reforms to counteract government union demands. The American Enterprise Institute for Public Policy Research released a study showing that prior to Act 10, Wisconsin public-sector employees made 29 percent more than workers in similar private sector jobs. Afterwards, they still made 22 percent more than private sector counterparts. Many states are now forced to cut programs to pay government employee union wages and benefits; these unions are detrimental to a middle class that is left to foot the bill. [Jessica Miller, Response: Are Unions Necessary?, June 12, 2012 ]

2010

Daniel Griswold - Labor leaders lobbied hard for the “Buy American” provisions in the $800 billion stimulus package that Congress approved and President Obama signed in early 2009. Labor leaders such as Richard Trumka of the AFL-CIO and James Hoffa of the Teamsters union express the fears of many of their members that free trade and globalization have reduced the scope and power of organized labor in the United States. They see import competition and the ability of U.S. companies to locate production abroad as direct threats to the living standards and bargaining leverage of the union members they represent.

As the 1980s unfolded, private-sector labor unions in the United States had become monolithically skeptical of trade liberalization. For a variety of reasons, the recent era of globalization has not been kind to the labor movement. Two broad trends are undeniable. In recent decades, the share of private-sector workers who belong to labor unions has been declining in most developed countries, while at the same time levels of trade, foreign investment, and other measures of globalization have been rising rapidly.

Union leaders who blame globalization for their declining membership and power can point to a lot of circumstantial evidence to support their fears. The share of private-sector American workers who belong to labor unions peaked at 36 percent in 1953-54, then declined slowly through the 1960s and more sharply beginning in the early 1970s. By 2006, private-sector union density had fallen below 8 percent.

The phenomenon of declining union membership is not unique to the United States. Between 1990 and 2003, union densities declined in 21 of 24 industrialized nations surveyed by the U.S. Department of Labor. The decline was especially sharp in the United Kingdom, Australia, and Japan. Union membership has not only shrunk during the era of globalization but unions have become less militant. After peaking in the 1970s, the number of days lost to strikes plummeted into the 1990s.

Economic theory offers a number of reasons why growing international competition would be damaging to the interests of labor unions. More competition in product markets means greater elasticity of demand for labor—that is, global competition means that demand for labor is more sensitive to any change in wages. Employers competing in global markets cannot simply pass higher wage costs along to consumers in the form of higher prices because consumers themselves can choose to buy substitute products from lower-cost, often nonunionized producers.

Expanding capital mobility means that employers are more able to shift production to lower-wage countries if necessary. A more mobile company is better able to threaten or employ an “exit” option in response to union demands. In the face of product competition and capital mobility, union demands for higher wages can lead instead to fewer domestic union jobs, as has been the case in a number of firms and industries.

In contrast, in markets insulated from robust competition, unions can more readily demand a share of a company’s or industry’s profits without fear of compromising the survival or competitiveness of the employer. As a result, union densities tend to be much higher in the public sector or in heavily regulated industries, where competition is much reduced or lacking entirely compared to the nonregulated private sector.

According to the U.S. Current Population Survey (Hirsch and Macpherson 2009), the unionization rate in the public sector was 36.8 percent in 2008 compared to 7.6 percent in the private sector. Rates of unionization were above 50 percent for railroad conductors and locomotive engineers; parking enforcement workers; Postal Service mail carriers, sorters, and clerks; fire fighters; subway, street-car, and rail transport workers; electrical power line installers and repairers; and secondary school teachers. All those occupations are concentrated in government or regulated sectors.

On the policy front, globalization may also encourage governments to adopt laws less friendly to unionization. The actual evidence on globalization and unions is mixed, and points in some unexpected directions. In a comprehensive study of the impact of trade on U.S. labor unions, Baldwin (2003) concluded that the decline in union density in the United States has not been driven by a shift of employment from unionized sectors to non-unionized sectors, but by a broad economy-wide decline of unionization across sectors and regions. Most of the decline in unionization rates was because of declines within sectors.

Other nontrade factors contributing to the decline of unionization include the more rapid growth of certain categories of workers, such as women, southerners, and white-collar workers, who are less favorable to unionization; the deregulation of transportation industries; declining efforts of unions to organize new members; government activity that substitutes for union services, such as unemployment insurance, industrial accident insurance, leave policies, and other workplace regulations; the decline in pro-union attitudes among workers; and increased resistance among employers.

Another factor of globalization that works against unionization is the rising social contact that accompanies economic globalization. According Dresher and Gaston (2007: 174–75), “unionization significantly decreases with rising social globalization,” which they define as “the spread of ideas, information, images and people.” This aspect of globalization tends to undermine the status quo and promote acceptance of new concepts, policies, and institutions, which can work to weaken the power of unions to control markets and competition.

Social globalization reinforces what Dresher and Gaston (2007: 176) call a “growing normative orientation towards individuals rather than collectivism [which] makes collective organization more difficult.” Adding to the trends are rising levels of immigration and perceptions of younger workers who view unions as old-fashioned and anachronistic institutions.

The effects of globalization on union membership are secondary and work through unexpected channels such as inward direct investment and a softer social globalization that has changed perceptions of labor unions.

The weight of evidence indicates that, for most firms in most sectors, unionization leaves companies less able to compete successfully. The core problem is that unions cause compensation to rise faster than productivity, eroding profits while at the same time reducing the ability of firms to remain price competitive. The result over time is that unionized firms have tended to lose market share to nonunionized firms, in domestic as well as international markets.

In competitive product markets, the drag that unions impose on firm performance can be debilitating to the firm and its workers over time. Firms facing vigorous competition are not able to pass along higher costs to consumers without risk of losing significant market share.

The inescapable conclusion is that unionized companies in the United States have performed poorly relative to nonunion companies. To the extent that output and resources are mobile, poor union performance has led to a shift of production and employment away from unionized industries, firms, and plants and into the nonunion sector or to producers overseas.

The overall trend of the American economy during the era of globalization has not been toward “deindustrialization” but “deunionization.” Union density in the private sector has not been falling because of a major shift of employment from unionized manufactur ing to nonunionized services. Instead, the real shift has been from unionized manufacturing to nonunionized manufacturing.

The large majority of workers are simply not exposed to direct competition with foreign workers. Most workers are employed in service sectors that by their nature are not widely traded across international borders, including government-provided services.

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