Pay'n Save Pension Fund In Doubt

WEST SEATTLE

The financial troubles of a huge California-based insurance company are threatening the pensions of 2,000 Pay'n Save workers.

In addition, a small portion of pension money invested on behalf of state workers is threatened.

In both cases, the pensions are theoretically supposed to be protected by Washington state's insurance-guarantee fund, but holes in the fund may allow some pension losses to slip through without coverage.

The problems result from the financial troubles of California-based First Executive Corp., which has $55 billion worth of insurance policies and annuities issued nationwide. The company is teetering on the brink of becoming the nation's largest insurance insolvency ever.

First Executive, which has been hurt by its investments in junk bonds, is currently in conservatorship in California and is being run by the state's insurance department.

First Executive and its subsidiaries have more than $200 million worth of health, casualty, and life-insurance policies and annuities in Washington.

In the case of current and former Pay'n Save workers, the problem is that the insurance-guarantee fund - a mutual-aid pact in which all the state's insurance companies promise to make good on each others' policies - covers only a fraction of the amount of what the pensions are worth. For a group annuity, which is the type covering the Pay'n Save workers, the maximum guarantee is $5 million. The Pay'n Save group annuity is worth $41 million, which leaves $36 million at risk.

Some or all of the Pay'n Save fund may well turn out to be solvent, according to state regulators. For now, a California court is permitting First Executive to make 70 percent of its obligated annuity payments. And, there is speculation that other insurance companies will step in and make good on all of First Executive's policies and annuities to avoid a black eye for the industry.

But, if some of the Pay'n Save fund ultimately fails, pension holders may end up with only a fraction of the retirement benefits they thought they would get. And they'll have a hard time finding anyone to blame.

The current owner of Pay'n Save, Thrifty Corp. of Los Angeles, said it had nothing to do with the purchase of a First Executive group annuity in early 1986. Thrifty bought the company in 1988 from Julius and Eddie Trump. A Thrifty spokesman said since the company took over Pay'n Save in 1988, payments into the pension fund have been adequate and secure. The Trump brothers (not related to Donald Trump) had taken over the company in 1984 from Monte Bean, whose father founded Pay'n Save in 1947. The Trumps spun off some of the company's pieces into separate companies and took it private in a leveraged buyout.

In the process, according to Bean, the brothers took $12 million from the pension fund, worth more than $20 million at the time, and used what was left to buy a First Executive junk-bond-backed annuity to support the pensions. The brothers did not return phone calls.

"When (the Trumps) took out that money from the pension, the bonds (they bought instead) were rated pretty highly. Everything they did was legal. But they were playing pretty loose with peoples' retirement," Bean said.

For state workers, the problem is smaller, but muddier. State insurance records show that the state's Committee on Deferred Compensation, which has invested $166 million in retirement money on behalf of 20,000 state workers, has $4.3 million with First Executive that might not be covered at all.