Ex-workers sue Hughes Aircraft for fund surplus.

They allege it illegally took money from pension fund

Five former Hughes Aircraft Co. employees are suing the aerospace corporation, alleging it illegally took control of a $1 billion surplus in their pension plan last year. They say much of that money rightfully belongs to more than 10,000 Hughes retirees.

The $4.2 billion-in-assets pension plan for salaried employees has been funded by both employee and corporate contributions. Thanks in part to investment gains during the 1980s a surplus accrued, ranging from $973 million to $1.21 billion over the last five years.

The group is trying to force Hughes to spend the surplus on the retirees, in the form of higher pension benefits. That is called for under federal law, their attorneys claim. In a lawsuit filed Jan. 21, they allege Hughes instead has funneled the surplus into a new pension plan to cover the old-age benefits for a certain group of current employees.

The case grows out of a related lawsuit filed last year by Hughes retirees to force the corporation to divulge the names and addresses of all pension-plan participants. Armed with that information, they said, they intended to form a "watchdog" group to police the plan. The retirees lost that case in Los Angeles District Court and appealed it to the U.S. Ninth Circuit Court of Appeals where it is pending.

Depending on how the courts rule on both suits, the high-stakes affair could yield guidelines to companies that manage retirement war-chests and to employee activists who want a voice in that management.

Concerns about old-age income have mounted nationwide as pension assets controlled by U.S. companies have risen to about $1 trillion. More commonly, squabbles and lawsuits have centered on the more unfortunate cases where pension plans were underfunded.

Hughes, based in West Los Angeles, had not filed a response to the charges at press time last week. Attempts to reach a Hughes attorney and spokesman for comment last week were unsuccessful. Hughes attorneys in the past have strongly defended the company's stewardship of pension fund, in which they and most Hughes senior management also participate.

The plaintiff in the earlier case was the Hughes Salaried Retirees Action Committee. Its chairman is Stan Jacobson, who is the lead plaintiff in the latest retiree suit. The latter was filed in U.S. District Court in Arizona, where the five plaintiffs live and Hughes operates a division.

Both cases concern Hughes' pension plan for non-union employees. There are an estimated 13,000 who have retired and 42,000 currently working who are covered. The remaining Hughes employees -- 8,000 who belong to unions and another 10,000 who work for Hughes subsidiaries -- are covered by other pension plans.

Specifically, the new lawsuit alleges that problems began shortly after General Motors Corp. purchased Hughes in December 1985. The next year Hughes stopped making contributions to the salaried employees' pension fund. It did, however, continue requiring mandatory contributions from employees.

The new lawsuit pointedly says GM's pension plan, at that time, was underfunded by more than $7 billion and was listed by the U.S. Pension Benefit Guaranty Corp. as one of the most underfunded plans in the nation.

According to retirees in the new lawsuit, Hughes never resumed corporate contributions to the plan but did change some of its rules: Effective Jan. 1, 1991, the voluntary plan became mandatory for all salaried employees, but contributions were no longer mandatory.

The retirees claim this amounted to terminating the "old" plan and creating a "new" plan. A Hughes attorney in the past has denied creation of such a "new" plan.

Transferring funds from one plan to a second, which does not benefit the original contributors, could be a violation of the federal Employee Retirement Income Security Act of 1974, the suit claims. ERISA governs pension plan administrators and guarantees certain rights to beneficiaries.

During the 1980s, some employees were surprised when their managements "reverted" pension surpluses to the corporations. The process, done by Woodland Hills-based Blue Cross of California and many others, was legal, although some U.S. Congress members raised a stink about it.