The Weirton, West Virginia-based company’s pension plan is only 39% funded with $530million in assets to cover almost $1.35 billion in benefit liabilities. Of the $825 million in total underfunding, the Pension Benefit Guaranty Corporation (PBGC) estimates that itwill be liable for about $697 million, according to a news release.
Time is of the essence in the latest move. The PBGC estimates that if the plan is not terminated now, the agency is at risk of incurring an additional loss of as much as $147 million for shutdown benefits, a form of severance pay that companies do not set aside any money in advance to fund. Given the fact that the PBGC receives no general tax revenue, an additional hit that large would definitely leave a mark.
“I regret that the PBGC has been forced to take this course of action,” said PBGC Executive Director Steve Kandarian ( See Steve Kandarian ) . “Because Weirton Steel did not set aside enough money to pay for the pension promises made to its employees, some participants will not get all the benefits they earned. This termination underscores the need for fundamental reforms that will get pension plans better funded, which is the best protection for workers and premium payers.”
Once the PBGC becomes trustee of Weirton’s pension plan, retirees willcontinue to receive their monthly benefit checks without interruption,up to guaranteed federal limits. Other employees will receive benefits when they are eligible to retire.Federal guidelines call for workers in plans that terminate in 2002 is $3,664 a month (or $43,977 a year) for workers retiring at age 65. Maximum guarantees are adjusted for retirees older or younger than age 65 and for those who choose survivor benefits.
The company and the nation’s steel industry have been battling for survival for the past several years. Weirton filed for Chapter 11 bankruptcy protection on May 19, 2003 (See Steel Woes Push Weirton Into Bankruptcy ) and in its October 7 plan of reorganization officials at the company said it could no longer afford its pension plan and must shed these liabilities to emerge from bankruptcy. The company has also failed to make at least $69 million in legally required contributions to its pension plan, which is grounds for termination under the Employee Retirement Income Security Act (ERISA).
Hard hit by having to shoulder responsibility for the stream of steelmaker pension plans from defunct or bankrupt companies was the PBGC. PBGC officials have repeatedly indicated that the steel plans have made an enormous dent in the agency’s finances (See PBGC Head Paints Gloomy Picture for 2003 – and Beyond ). In aggregate, the agency reported an unaudited deficit of $8.8 billion as of August 31, 2003 (See PBGC: Deficit Now Stands at $5.7 Billion ).
The PBGC, created by ERISA to guarantee private-sector pension benefits, currently backs pension benefits for about 44 million American workers and retirees participating in over 32,500 private sector defined benefit pension plans. The agency is financed by insurance premiums from covered companies and investment income.