Magnetek covers retirees' pension losses: it makes good on worker's Executive Life annuities.

Magnetek covers retirees' pension losses

Magnetek Inc. is making up the difference on pension payments that had been reduced to 600 company retirees because of financial troubles of Executive Life Insurance Co., a Magnetek executive said last week.

The security of Magnetek pensions became an issue when Executive Life - responsible for issuing payments - was put into conservatorship by California Insurance Commissioner John Garamendi one month ago.

Garamendi spokesman Bill Schulz said he knew of no other Los Angeles-area company that has made such a pledge.

Magnetek is the largest manufacturer of electrical equipment in the West. Sales of its motors, generators and other products hit $1.1 billion last year. The West Los Angeles-based company had purchased annuities from Executive Life for some of its 16,000 employees.

Annuities are contracts that pay out investment income to the holder beginning at a future date, such as retirement. Executive Life is under court order to pay 70 precent of monthly pensions owed to holders of annuities.

"They're paying 70 cents on the dollar and we're paying 30 cents on the dollar," said a Magnetek spokesman. "We feel obligated to the people of this company that they get what they bargained for. That's the commitment that Frank made . . .," he added, referring to a pledge by Magnetek President and Chief Executive Frank Perna.

On April 24 Perna said, in a written statement, "We cannot allow our retired associates to wait for their pension payments while insurance industry and government authorities resolve this issue."

Perna noted that Magnetek is not required to make such co-payments under the law or contract. Still, Magnetek will pay retirees' pension benefits "as a matter of good faith" if payments "are reduced or delayed and insurance industry and government safety nets fail," according to the company statement.

Garamendi on April 11 took over the management of Executive Life. He said its financial condition was seriously troubled. The $10.1 billion (assets) insurance company is a unit of First Executive Corp. Both have headquarters in West L.A.

Unlike some financially troubled companies that have not guaranteed pensions in years past, Magnetek appears in strong financial shape. In mid-April it reported record sales and profits for the third-quarter and nine-month periods, despite the recession. Quarterly earnings were $11.2 million on sales of $293.1 million.

This follows extraordinary growth since 1986. Over four years, revenues averaged 47 percent annual growth. Earnings were even better, up an average 92 percent a year.

According to company records, the operating profit per employee has grown 40 percent since 1986 to $7,400 in fiscal year 1990.

Magnetek operates 65 plants in North America and Europe.