The Pension Benefit Guaranty Corporation’s (PBGC) recent plans to assume the ailing pension plan of Bethlehem have put a major hurdle in the plans of the proposed merger. Chief executives from both companies feel the take-over, which hinged on older workers taking a proposed early retirement deal, has now hit a major snag.
The early retirement of older Bethlehem workers would have reduced labor costs to a level needed to reach the buyout agreement by International Steel. Previous proposals included offering early retirement incentives to some more experienced workers that have accumulated hundreds of thousands of dollars in potential pension benefits.
These workers would have also been offered a combination of bridge benefits, until they became eligible for pension and federal health benefits, at 62 and 65 years old, respectively.
Additionally, workers accepting the deal would have been able to receive benefits under an assistance program, recently approved by President Bush , providing a 65% income-tax credit toward health-care costs for qualifying employees.
However, workers at Bethlehem will now have little incentive to take advantage of the deal. Because the PBGC intends to take over Bethlehem’s pensions, many employees will not be old enough to collect a pension and will therefore be ineligible to qualify for the President’s plan.
“This news makes it much more difficult for us to consider a business combination with International Steel Group,” said Steve Miller, CEO of Bethlehem Steel. “I expect to be sitting down shortly with the PBGC asking for a modifying date of termination.”
Miller said he wants enough time to eliminate about a thousand workers over the next few months to complete the deal with International Steel.
Wilbur Ross, chairman of International Steel, also noted the necessity to eliminate those workers and their costly benefits to continue forward with the deal. Without such a move, “this is not a feasible deal, as of today,” said Ross, who added Bethlehem would still be looked at to provide an additional $4 billion in liabilities.
However, the PBGC said it does not plan to change its takeover plan . “We have no intention of changing our plans. It is not up to corporate executives to determine the timing of the pension-plan termination that serves their interests,” said Randy Clerihue, chief spokesman for the PBGC.
Clerihue went on to say if the PBGC waited until Bethlehem eliminated its employees, the agency would be forced to accept an additional $500 million to $1 billion in claims.
The current Bethlehem pension plan includes more than 67,000 retirees receiving benefits, more than 15,000 former employees who will be eligible for a benefit at retirement age and approximately 13,000 active workers.