The New York-based holding company had a controlling interest in RG Steel, which sponsored two pension plans with about 1,350 people. The $97 million in damages sought by PBGC includes the plans’ unfunded benefit liabilities, unpaid minimum funding contributions and termination premiums. In January 2012, Renco sold 24.5% of its ownership stake in RG Steel to an affiliate of the New York-based investment firm Cerberus Capital Management LP. The PBGC alleges Renco reduced its ownership stake in an attempt to free itself from responsibility for RG Steel’s pension debts. According to the complaint, PBGC raised concerns about the transaction and held back on terminating the plans after Renco gave assurances that no transaction changing its ownership status was imminent.
“A principal purpose of this proposed transaction was to dilute Renco’s ownership in RG Steel below the 80% threshold set forth in ERISA [Employee Retirement Income Security Act] in order to break up the controlled group, thereby allowing Renco to evade liabilities owed to PBGC if the plans were to terminate,” the complaint says.
On January 18, 2012, Renco said publicly that its transaction with Cerberus would give RG Steel new capital to improve the company’s financial health. However, less than five months after the deal closed, RG Steel filed for Chapter 11 protection and began to sell off its assets to buyers that did not assume the pension plans. In November 2012, PBGC took responsibility for the plans.