1/24/97 -- 8:41 PM

Hughes-Pension Suit,0358

SAN FRANCISCO (AP) - A federal appeals court has revived a retirees' lawsuit seeking to share in a nearly $1 billion pension surplus from Hughes Aircraft Corp.

A group of five former Hughes employees, seeking to represent 10,000 retirees, is challenging the company's use of the pension surplus to create an alternative pension plan and an early-retirement program.

The 9th U.S. Circuit Court of Appeals, in a 2-1 ruling Thursday, said federal law restricted the company's use of the money because half of the surplus was allegedly the product of employee contributions.

The 1992-filed suit said Hughes, after being acquired by General Motors Corp., misused money that had accumulated in the pension fund through 1986.

GM recently announced it is selling the defense operations of Hughes to Raytheon Co. in a $9.5 billion deal.

At the time GM acquired Hughes, both the company and employees were required to contribute to the fund, which paid for pensions, automatic cost-of-living increases, and health coverage for retirees.

In 1989, the suit said, Hughes used part of the surplus to fund an early-retirement program, which reduced its payroll costs. In 1991, the company used additional surplus funds to establish an alternative pension system that was mandatory for new employees, the suit said. Employees enrolled in the old pension system were free to switch to the new one.

Under the new plan, employees made no contributions, pensions were lower, and neither cost-of-living increases nor health benefits were provided.

The suit accused Hughes of illegally using the pension surplus for its own benefit and effectively terminating the old pension plan. If the plan was found to be terminated, the surplus would have to be distributed to pension plan members.

U.S. District Judge Richard Gadbois of Los Angeles dismissed the suit without a trial but was overruled by the appeals court, which said the retirees had alleged violations of the law and were entitled to try to prove them.

Copyright 1997 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.