Court Agrees With PBGC Denial of Shutdown Benefits

January 23, 2013 ( – A recent court decision indicates timing is everything when it comes to eligibility for shutdown benefits from the Pension Benefit Guaranty Corporation (PBGC).

The U.S. District of Columbia Circuit Court of Appeals found that evidence a mining company was still trying to secure new orders after it stopped production at one of its plants supported the agency’s conclusion that the plant was not shut down at the time of the termination of the company’s pension plan.  

Unable to secure new orders, Eveleth Mines LLC filed for bankruptcy under Chapter 11 of the Bankruptcy Code, and on May 15, 2003, its wholly owned subsidiary, Thunderbird Mining Company, ceased production and laid off all but four of its hourly employees. According to a March 10, 2003, notice that Eveleth issued to its employees, the closure was expected to be temporary, “but only if anticipated pellet orders are received during the shutdown period.”  

The plant had been temporarily shut down in the past, but unlike during prior shutdowns, during this shutdown the plant was not maintained in “standby condition.”

According to the court opinion, after receiving notice of Eveleth’s bankruptcy filing in May, the PBGC began analyzing the company’s prospects and its ability to sustain its pension plan. Having determined that Eveleth’s pension plan had a “funded ratio” of only 52% and that Eveleth had “no realistic prospect of adequately funding it,” the agency concluded that the plan would be unable to pay benefits when due. The agency also concluded that its long-run loss with respect to the plan would increase unreasonably if the plan was not soon terminated. On July 24, 2003, the agency filed an action in federal district court seeking to terminate the plan and to establish July 24, 2003, as the plan termination date.  

Participants in the Thunderbird Mining Company Pension Plan sought shutdown pension benefits, arguing that since the plan was not maintained in “standby condition,” the company intended the shutdown to be permanent. However, the agency asserted that the failure to maintain the plant in standby condition “would [not] foreclose any reasonable likelihood of resuming operations.” The appellate court concluded that in light of evidence that the company was still seeking to secure new sales contracts in July, two months after the company ceased operations, substantial evidence supported the agency’s decision.  

Laiwu, a Chinese company, and an Ohio mining company offered to purchase Eveleth’s assets, with the intention of operating the plant and producing taconite pellets. The proposed sale terms required Eveleth “to restore its mining operations to operating condition consistent with industry practice” in advance of the proposed closing on December 1, 2003. The bankruptcy court approved the sale on November 25, 2003, and the transaction closed on December 1, 2003. On that date, Eveleth permanently laid off all of its employees except three members of management. During the month of December, the purchasers hired the company’s former hourly employees under the terms of a new collective bargaining agreement.  

The court’s opinion is here.