The trustees decided to vote down the plan because it did not address qualms that the English High Court had expressed regarding the fact that ‘letting the plan run’, as Federal-Mogul has proposed, would result in different pensioners being treated differently. It also did not include a new offer from US financier Carl Icahn, who is the largest holder of company debt.
Federal-Mogul, which has 37,000 employees in the UK through its subsidiary Turner & Newell, had entered Chapter 11 bankruptcy protection in 2001 to protect itself from asbestos litigation. Turner & Newell was the largest employer in the British asbestos industry, and was acquired by Federal-Mogul in 1988.
The fund has an estimated $1.58 billion shortfall, according to Reuters, and by ‘letting it run’, the fund would not meet its obligations to regularly contribute to the pension scheme. It would also mean current employees who were contributing to the fund would have no guarantee that they would receive benefits in the future.
Although they rejected the proposed rescue plan, the Trustees say that they want to consider Icahn’s offer that would see creditors put $25 million in the Turner & Newell pension plan each year for the first three years, and then close the fund’s shortfall within ten years. Reuters is reporting that there is some worry that the future funding by creditors will not be binding in the US, possibly throwing a roadblock into the plan, however.
If the plan is allowed to run out, 20,400 pensioners would lose 20% of their promised pension, and 16,800 non-pensioners would lose almost 80% of their promised pensions, according to a UK pension consultant. John Ralfe, according to Reuters, says that the new UK Pension Protection Fund could be stuck with a huge bill upon opening its doors in 2005.