Acme Brick employees sue Buffett’s Berkshire Hathaway for cutting retirement benefits

09/05/2014 10:03 AM

09/05/2014 10:05 AM

Acme Brick’s chief financial officer is among those suing the Fort Worth-based company’s corporate parent, Berkshire Hathaway, alleging that it improperly reduced contributions to their 401(k) retirement plan and froze the company’s pension.

The class action lawsuit, filed Aug. 15 in U.S. District Court in Fort Worth, says Berkshire Hathaway, run by multi-billionaire Warren Buffett, broke a pledge it made not to reduce benefits when it acquired Acme Brick as part of its 2000 purchase of Justin Industries.

“Since that time, the employees have stuck with the company through good times and bad, in anticipation that their benefits under the retirement plans would ultimately compensate them fairly,” the lawsuit says. “Now, almost 14 years later, Berkshire Hathaway has broken its promise.”

CFO Judy Hunter, who has fiduciary responsibility as a member of the retirement plan committees, joined with another employee and a retiree in lodging the suit following alleged “strong-arm tactics” by Berkshire Hathaway to reduce benefits.

Acme’s senior management on July 15 voted to make changes to the retirement plans urged by Buffett, Berkshire’s chief executive officer, and Marc Hamburg, its CFO. If the changes were not made, “Berkshire Hathaway intended to divest itself of Acme as a subsidiary,” the lawsuit says.

Since 2010, Berkshire has reduced Acme’s contribution to the 401(k) retirement plan from a 50 percent match on up to 5 percent of an employee’s salary to 25 percent, the lawsuit says. Meanwhile, the pension plan was frozen earlier this month, the lawsuit contends.

The lawsuit alleges that the changes violate the federal Employee Retirement Income Security Act, commonly known as ERISA. The lawsuit asks the court to declare that Berkshire Hathaway’s promise not to reduce benefits is an amendment to the retirement plans and that Berkshire be required to unfreeze Acme’s pension plan, fully fund the 401(k) and not make further changes.

The plaintiffs are also seeking unspecified damages.

Acme Brick has about 2,242 employees, of which 1,558 are in the pension plan and 1,010 in the 401(k), according to the lawsuit. Acme manufactures and sells brick and distributes other building products in 14 states, primarily in the south and southeastern United States.

Reached by telephone, Hamburg declined to comment on the suit, but issued a statement saying that Berkshire never promised to keep benefits the same forever.

“Acme strongly believes this interpretation of the acquisition agreements is clearly wrong and expects that its actions will be upheld by the courts,” Hamburg’s statement added.

Christopher Graver, an Arizona lawyer representing the plaintiffs, also declined to answer questions and issued a statement saying that the retirement plan changes violated “an agreement Berkshire Hathaway made when it acquired Justin Industries.”

In addition to Hunter, a 24-year Acme veteran, the other named plaintiffs are Anita Gray, assistant controller at Acme; and Bobby Lynn Allen, a retired employee.

The actions by Berkshire mirror a trend in corporate America away from traditional defined benefit pension plans to defined contribution 401(k) plans.

But Berkshire is a highly profitable company run by one of the world’s richest men. In the second quarter, Berkshire reported a record profit of $6.4 billion, and Forbes magazine this year estimated Buffett’s net worth at $67.4 billion.

Acme was founded in 1884 in Parker County and moved to Fort Worth in 1911. In 1902, one of its first big jobs was providing the brick for the Swift and Armour meat packing plants in what is now the Fort Worth Stockyards, according to its website. It was acquired by Justin in 1968.

In 2007, it moved its headquarters from West Seventh Street to southwest Fort Worth. In 2007 and 2008, the company was forced to close some plants in the wake of the nationwide housing collapse, but production has since rebounded.

Acme’s 401(k) plan provided a 50 percent company match on employee contributions at the time of the Justin purchase. But beginning in 2006, Berkshire Hathaway began proposing reductions in the retirement plans, including a “hard freeze” that would eliminate future accruals of benefits for pension plan participants and preclude future employees from participating, the lawsuit says.

The retirement plan committees fought the attempt to reduce benefits and heard nothing more until 2012, when Acme “discovered” that its officers “mistakenly reduced” the 401(k) plan match to 25 percent in 2010 and 2011. Hamburg directed Acme not to return the match for 2012 and 2013, the lawsuit says.

In March 2013, the company adopted a “soft freeze” whereby new employees could not participate in the pension plan. In January, Berkshire Hathaway again contacted Acme about reducing or eliminating benefits in the retirement plans, despite being told by lawyers that it would violate terms of the retirement plans.

Acme’s retirement committees gave Berkshire Hathaway until June 27 to explain why payments were not being made, according to the lawsuit.

Acme CEO Dennis Knautz met with Buffett and Hamburg on June 25 for 90 minutes in Berkshire’s Omaha headquarters, where he was given two ultimatums about plan changes “that were not negotiable,” the lawsuit says. Knautz could not be reached for comment on Friday.

On Aug. 11, senior management agreed to one of those choices, calling for the immediate “hard freeze” on the pension plan and to reinstate the 50-percent match for the 401(k) for 2014, with modifications possible after this year, the lawsuit said. Employees were notified of the changes a few days later.

In Fort Worth, Berkshire Hathaway also owns BNSF Railway, Justin Brands and TTI.

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