Steelworkers Plan "Shutdown Benefits" Showdown

August 5, 2004 ( - A steelworkers' union representing laid off Ohio steelworkers isn't accepting without a fight that the federal private pension insurer won't pay "shutdown pensions" to those who didn't qualify for regular pension benefits.

The United Steelworkers of America is preparing to send a busload of its members to Cincinnati for an August 11 demonstration outside the US   6th Circuit Court of Appeals as federal appeals judges ponder the “shutdown benefits” issue relating to the bankruptcy of Republic Technologies International, the Akron Beacon Journal reported.

The court will be hearing oral arguments in the appeal of a September 2003 ruling by US District Judge Peter Economous that the Pension Benefit Guaranty Corporation (PBGC) should be forced to pay the “shutdown benefits” – an amount for which the pension agency denies it has responsibility. 

When Republic filed for bankruptcy protection in April 2001, the pension agency maintained it couldn’t afford the liability of the shutdown pension, which was unfunded by Republic — “and therefore not insured by our program,” agency spokesman Jeffrey Speicher told the newspaper. The Economous ruling that is the subject of the appeal court case came in a union lawsuit filed in an attempt to force the issue (See    Judge Denies PBGC Effort to Block Union’s Data Request ).

At stake for the pension agency is $100 million – the amount it estimates Republic’s shutdown benefits would cost it. Beyond the $100 million, an appeals court decision could open the pension agency to more liabilities. Union contracts in the aluminum, iron ore and automotive industries provide shutdown benefits that are broadly similar to the Republic case, according to the news report. The agency has repeatedly blamed the widespread pension failures in steel and airline industries as having a significant impact on its finances (See  Steel, Airlines Weigh on PBGC ) and has asserted that being forced to be responsible for shutdown benefits would prove yet another major financial strain on the private pension insurance system.

Shutdown pensions are paid to workers who reach certain tenure and age levels. In the volatile steel industry, they were long seen as a cushion for workers if they lost jobs before full retirement age. The shutdown pensions could be used as a cushion, too, if workers had to take lower-paying jobs. The 700 or 800 workers who lost jobs or went to work for Republic’s successor at substantially less pay could collect several hundred dollars a month in shutdown pension checks if the appeals court rules in their favor.

However, the union’s general counsel, David Jury, said there are several unique factors in the Republic case and any court decision might not apply to other situations. Republic filed for bankruptcy protection in April 2001. It subsequently announced that it would have to sell most of its assets and liquidate or close down some plants.

The union and company agreed it would shut down on Aug. 16, 2002, when its assets would be sold to a new purchaser. Before that could happen, however, the pension agency moved to terminate Republic’s pension plans before anyone could become eligible for the shutdown benefits. The pension agency filed suit in June 2002, asking to terminate the plans (See  PBGC Picks Up Another Steel Casualty ).