Appellate Court Declines to Disturb AK Steel VEBA

April 9, 2009 (PLANSPONSOR.com) - A federal appellate court has refused to invalidate a plan by AK Steel Corp. to establish a $663-million voluntary employees' beneficiary association (VEBA) to fund retiree health benefits.

The 6 th U.S. Circuit Court of Appeals refused to disturb a lower court’s decision approving an out-of-court settlement of a suit filed by retirees in an effort to block the company’s intention to curb its retiree health package.   In its decision, the 6 th Circuit said that the lower court judge was right in turning away an effort by a separate smaller group of retirees for permission to get involved in the case as a separate party so they could try to hold up formation of the VEBA to which they objected.

The appellate judges asserted that allowing the second separate group of retirees to step into the case to fight the VEBA would have infringed on the rights of both sides.

Not only that, the 6 th Circuit said the lower court correctly weighed the factors for deciding whether the settlement was fair, reasonable, and adequate. The appeals court rejected the objectors’ argument that the settlement should not have been approved because an outside study used a 7% discount rate in estimating the VEBA’s rate of return, which the objectors said was too high.

Health Coverage Curbs

AK Steel announced in June 2006 it was terminating its retiree health plan effective October 2006, and implementing a new retiree insurance program that included monthly premiums to be paid by the retirees, according to a case history in the 6 th Circuit ruling.

In addition, the new program terminated the dental, vision, and Medicare subsidy benefits of the retirees and reduced their life insurance benefits.

The retirees filed a class action in July 2006 to block the health plan curbs, arguing that AK Steel was not permitted to change its retiree benefits provided under bargaining agreements because those benefits were vested. According to the 6 th Circuit ruling, the lower court barred the company from implementing the health coverage curbs in September.

About a year later, the two sides settled the case with the agreement to form and fund the VEBA. The lower court approved the settlement in February 2008 (see  Total Benefits: Viva VEBA ).

The case is Bailey v. White, 6th Cir., No. 08-3166.

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