The Pension Benefit Guaranty Corp. (PBGC) said it plans to take responsibility for paying pension benefits to 95,000 workers and retirees of Bethlehem Steel, the nation’s second largest integrated steel maker.
The Largest Ever
The Bethlehem Steel pension plan would be the largest ever taken over by the PBGC in its 28-year history, both in terms of the number of participants and the amount of underfunding. The PBGC estimates the plan is just 45% funded, with $3.5 billion in assets to cover $7.8 billion in benefit liabilities. Of the $4.3 billion in total underfunding, the PBGC says it expects to be liable for about $3.7 billion.
In a statement Robert S. Miller, Bethlehem’s chairman and chief executive officer, acknowledged: “Given the significant underfunding of our pension plan, this action by the PBGC is not unexpected. However, we are very disappointed that the PBGC is taking this action when Bethlehem has clearly not missed any scheduled contributions to the fund or payments from it to eligible recipients. An immediate termination is unfortunate and will adversely affect our ability to restructure our workforce in an orderly manner.” Bethlehem has been struggling with its pension obligations since it filed for Chapter 11 in October 2001 (see Bethlehem Steel’s Retirees Face Uncertainty ).
The PBGC proposes to terminate the Pension Plan of Bethlehem Steel Corp. & Subsidiary Companies effective December 18, 2002, and to assume responsibility for benefits earned to that date, subject to legal limits. The plan includes:
- more than 67,000 retirees currently receiving benefits,
- more than 15,000 former employees who will be eligible for a benefit at retirement age, and
- nearly 13,000 active workers.
“The PBGC is moving to protect the basic pension benefits of Bethlehem’s workers and retirees because the company can no longer afford to maintain its pension plan,” said Executive Director Steven A. Kandarian. “To safeguard the pension insurance system that protects millions of Americans, we had to act now to prevent even larger losses down the road.”
However, Bethlehem’s Miller noted that “this premature termination deals a serious blow to the potential recovery by the creditors of Bethlehem Steel Corp., one of the most important of which is the PBGC. We have made steady progress to either consolidate or emerge from bankruptcy as a stand-alone company, and have been negotiating a new agreement with the United Steelworkers of America to significantly reduce the represented workforce while eliminating salaried jobs.”
Tom Conway, Basic Steel Industry Conference (BSIC) secretary and USWA chief negotiator, charged: “The PBGC’s action denied us the opportunity of granting shutdown pensions to workers who are reduced from the workforce as a result of the restructuring necessary for the survival of the industry.”
The PBGC notes that, with the assumption of the Bethlehem pension plan, the steel industry accounts for more than half of all claims against the federal pension insurance program but only 2% of covered workers. In fact, over the past 14 months, the PBGC has absorbed more than $6 billion in claims from steel companies, including LTV Steel, which the agency assumed in March 2002 (see PBGC To Pick Up LTV Pensions ), and National Steel, which the PBGC moved to take over earlier this month (see PBGC to Take National Steel Plans in 2nd Largest Claim Ever ). Both the United Steelworkers of America and National Steel also questioned the timing of the PBGC move (see Union, National Steel Question PBGC Intervention).
Meanwhile the PBGC continues to pick up troubled plans, even as the agency itself is challenged by what PBGC Executive Director Steven Kandarian has termed a “perfect storm” of a large number of terminating underfunded pension plans, a falling stock market slashing still more from the terminated plans’ asset value, and low interest rates (see PBGC Exec: Pension Insurer Hit by ‘Perfect Storm’ ). Those challenges are no stranger to plan sponsors, themselves caught in the crossfire (see America’s Pension Crisis from the November issue of PLAN SPONSOR).
Under federal pension law, the maximum pension guaranteed for workers in plans that terminate in 2002 is $3,579.55 a month (or $42,954.60 a year) for persons retiring at age 65. Maximum guarantees are adjusted for those who retire at ages younger or older than 65 or those who elect survivor benefits. PBGC expects that most Bethlehem retirees will receive their full basic pension benefit. However, certain supplemental benefits and benefit increases made within the last 5 years will not be fully guaranteed.
The PBGC says that those with questions about the federal pension insurance program may call the PBGC’s Bethlehem Information Line, 1-800-453-9584, or consult the agency Web site, www.pbgc.gov/bethlehem