Pension funding dispute divides Peeps plant in Pennsylvania
By DAMIAN PALETTA, The Washington Post
Mar. 30, 2018
BETHLEHEM, Pa. (AP) — On April 1, hundreds of millions of marshmallow chicks and bunnies called Peeps will peer out from Easter baskets at American children.
They are a pastel symbol of Easter joy, but behind the wax-eyed candy is a company at war with its union workforce over rising pension costs — an escalating legal tangle that could soon upend the retirement plans of 10 million Americans.
The fight has featured a strike, Twinkies related bankruptcy, irreparably broken friendships, obscene T-shirts and a locked-up Peepsmobile. Now all sides await a federal appeals court ruling.
The 95-year-old company that makes Peeps, Just Born Quality Confections, wants to block new employees from enrolling in the multi-employer pension it has offered workers for decades, a retirement plan it funds along with roughly 200 other companies.
While many other companies facing similar pressures have left pensions in recent years, Just Born wants to bar new employees from the plan without paying a $60 million fee required under federal law, saying it must do so to remain competitive.
The fee exists to ensure future retirees' benefits are covered, and if Just Born succeeds in escaping it, union officials fear the unprecedented ruling would prompt thousands of other firms to do the same. This chain reaction could divert workers and money at a time when new employees are seen as crucial to ensure ample funding for the wave of retiring baby boomers — putting payouts for millions of pensioners at risk.
It is a fight that has divided this town, pitting the company that concocts a 28-calorie yellow spongy baby chicken against the union workers it employs. It has splintered the workforce of mechanics and candy makers who make 2 billion Peeps every year.
The company has suggested that if these changes are not made, its future in Bethlehem could be in doubt.
"To remain a sustainable business we need to continue to contain or reduce our costs in order to invest in our infrastructure, our associates and our brands," said Matt Pye, a Just Born vice president. "Our goal is to keep producing iconic candy brands for generations to come."
To many of the workers who make Peeps, members of the Bakery, Confectionery, Tobacco Workers and Grain Millers union, it is a line that cannot be crossed.
"There comes a point in time when you have to take a position," said Alex Fattore, 55, who has worked at Just Born for 37 years, and walked out during the stunning 2016 strike that escalated the feud. "You have to make a stand."
The stand came on Sept. 7, 2016. It was supposed to be peak Peep time, when the company accelerates production to prepare for an Easter binge that locks in almost half the company's annual sales.
Five days earlier, at a union building in nearby Allentown, 272 Just Born employees met and voted against the company's latest contract proposal. That offer would have directed all new employees into a 401(k) savings plan — which does not ensure benefits after retirement — and blocked them from participating in the pension.
The workers voted unanimously to strike.
The following Wednesday, Fattore and more than 100 others walked out of the sprawling candy factory that also makes the candies Mike & Ike and Hot Tamales.
They marched up and down the sidewalk, screaming "No Justice! No Peeps!" again and again. The strike went around the clock.
Belt One, the first-floor marshmallow-moving sidewalk that produces most of the company's 5.5 million Peeps per day, stood idle.
Striking workers noticed the Peepsmobile, a yellow Volkswagen Beetle adorned with a giant look-alike chick head, had disappeared from the front of the factory, to be found later locked up in a cage where it could not be damaged.
Many in Bethlehem and the surrounding area were stunned. Just Born and the union had coexisted since the 1970s without a strike. The company's revenue was reportedly growing. In an area where steel jobs had mostly disappeared, candy jobs had endured.
Peeps are an iconic brand for Bethlehem and central to its identity. On New Year's Eve, they do not drop a crystal ball. They drop a giant yellow Peep. The union workforce volunteers at soup kitchens and local churches.
"It's not exactly like 'us versus them,' " said Thomas Hyclak, an economics professor at nearby Lehigh University. "It's not like management was trying to take jobs and move them to South Carolina. This is a good company. But the workers are our friends and neighbors too. It's hard for people to take sides."
The strike went on for several weeks. Candy production plummeted, workers said, but the company refused to budge. The same family has owned Just Born for three generations, and they had complained that personnel-related costs were rising too fast. They needed to contain these costs to keep the firm competitive with others that have moved overseas.
"Many companies are moving part or all of their operations outside of the U.S. to take advantage of lower sugar prices available outside the U.S. and lower labor costs," Pye said in a statement to The Washington Post. "Just Born has, so far, been able to retain all of its manufacturing in the U.S. which puts us at a competitive disadvantage."
Union workers were skeptical. Candy Industry magazine had projected Just Born's net sales climbing to $231 million in 2016, up from $222 million in 2014. (The company would not comment on the candy magazine's estimates.)
The union tried to hold ranks, but people started slipping away. Twenty workers crossed the picket line and went back to work. They warned striking friends they would lose their jobs if they did not return immediately. The company even held a job fair, and more than 150 people showed up, enticed by the attractive pay people could earn without a college degree.
People panicked. Union officials said Just Born hired 100 new workers, while more striking workers ran back to their old jobs, fearful of losing their careers. Longtime friends hurled verbal, vulgar threats as they ducked away.
The union's worst nightmare was coming true — its members were splintering.
"If they break the union, do these people realize they could lose everything?" said Gordon Grow, a mechanic who spent 41 years at Just Born but retired after the strike because he refused to work with people he said crossed the picket line.
The striking workers, half of whom were older than 50, were losing money and knew their health benefits would run out in October. The strike had begun with unity but now they were wondering about the endgame. Jobs in Lehigh Valley that pay between $15 and $25 an hour for people without college degrees are hard to find.
So the union agreed to end the strike after four weeks. The damage between the company and its workforce was done. Many people staffing Belt One would not look each other in the eye.
It only got worse.
Union officials put a list of all the people who crossed the picket line on their bulletin board with the word "scab"— a labor epithet for someone breaking solidarity — written across it. It was ripped down less than two hours later.
Fattore wore a T-shirt of Calvin, a comic strip character, urinating on the word "scab." He was reprimanded by management.
The Calvin image remains on the window of a union member's truck, a daily reminder that the animus from the strike still festers — and that the issues that originally drove it remain unresolved.
Further complicating matters: If one of the companies paying into the multi-employer plan falters, the other firms are left on the hook to pay even more to stabilize the fund.
Just Born's union employees participate in the Bakery and Confectionery Union and Industrial International Pension Fund, which was flush with cash several years ago, even after the financial crisis. At one point, it had so much money that it paid pensioners 13 monthly checks each year.
The company and the pension seemed healthy, but when disaster struck it seemed far outside their control.
Hostess Brands, maker of Twinkies and Ding Dongs, accounted for 24 percent of all those contributions to the multi-employer pension. It stopped making contributions in 2011 and then filed for bankruptcy in 2012, weighed down by weakened demand, rising competition, and large levels of debt. Federal courts allowed it to escape without paying the pension fund $1 billion in obligations.
The pension fund immediately went from being one of the healthiest in the country to one of the most at risk.
The pension was now in a category known as the "red zone," which means if changes are not made it will likely become insolvent, and beneficiaries might just get pennies on the dollar when they retire. Some other pensions are even in worse shape.
"The crisis is looming on the horizon," said Kenneth Feinberg, who worked at the Treasury Department until last year and was tasked with scrutinizing rescue proposals from multi-employer plans.
In February, as part of a new budget law, Congress created a commission to try to stabilize struggling pension funds. In the meantime, many existing companies like Just Born are on the hook to pay higher premiums. The Peeps-making company says, without providing hard numbers, that it pays 39 percent more in pension contributions than what it negotiated under its last union contract.
These are the contributions it tried to scale back when it tried to unilaterally make the change to divert new employees into a 401(k) plan. A federal judge last year said the company could not do this, but it appealed that decision. The company and its union — as well as many other firms — are waiting for the appellate court decision.
The pension, which is administered by a group of labor officials and corporate executives from the 200 participating companies, has sued the company, alleging it improperly tried to stop enrolling new employees in the pension without paying the withdrawal fee. The company has sued the union, demanding "monetary damages" and alleging the strike was illegal.
Companies, labor leaders and retirees are watching closely, because the multi-employer pension that Peeps workers depend on is one of close to 1,300 around the country.
In total, 10 million current and retired workers participate in multi-employer pensions, according to the Pension Benefit Guaranty Corporation. These pensions allow employees to move from one job to another within the same pension and carry their retirement benefits with them.
Many of these multi-employer pensions are on track to run out of money. If the pension runs out of money, retired workers might only get a small percent of the money they thought they had earned through decades of work.
"We like to say that Just Born is the sweetest place in our community," Ross Born, co-chief executive of the company and a grandson of its founder, said in a 2016 "year in review" video. "We use more sweeteners than anyplace around, and we have the sweetest people, who really care about our iconic brands."
The sugary praise masked how strained relations had become with Just Born's union workforce. The pension had already sued Just Born, and now the company, the pension, and the union are all tangled up in lawsuits. All sides are frozen as a federal appeals court decides whether Just Born can block new employees from the pension while avoiding the $60 million fee.
"You've gotten rid of the fund in a circular way that I don't think anybody has ever done," U.S. Circuit Court Judge James A. Wynn Jr. told Just Born's lawyer in January, without saying whether he would allow it.
Since the strike, the company and its workforce have contracted. The union says there are only 326 workers on the production floors at Just Born now, down from 400 at the time of the strike. And just 250 are in the union.
Just Born's Pye said the firm has no plans to sell itself or move overseas. The company is just trying to manage costs for the future. Union officials said they believe the company and its workforce have been changed forever.
"Will everybody look at things like they did before?" said Hank McKay, president of the union's chapter "Local 6," which includes the Bethlehem workforce. "I don't think so."