On Friday the United Steelworkers of America decried the move as “both unnecessary and premature.” The USWA says the PBGC acted to limit its own liability, not to protect the pensions of National Steel workers/retirees. The day before, Mineo Shimur, Chairman and CEO at National Steel, said, “We are disappointed that the PBGC took this action at this time.”
“No Reasonable Scenario”
On Thursday, the Pension Benefit Guaranty Corp. (PBGC) acknowledged its intention to take over seven National Steel pension plans, noting it “has concluded there is no reasonable scenario under which National Steel can afford to maintain the pension plans.” The nation’s private pension fund insurer said the plans were just 47% funded, with roughly $1.3 billion in assets to cover more than $2.8 billion in benefit liabilities. Of the $1.5 billion in underfunding, the PBGC estimated that it would be liable for more than $1.1 billion (see PBGC to Take National Steel Plans in 2nd Largest Claim Ever ).
The company told the PBGC that it will not make any additional contributions to the plans, and the company has already missed more than $150 million in required minimum funding contributions, the PBGC officials said.
USWA international president Leo W. Gerard noted that National Steel, which filed for bankruptcy in March, is still developing a restructuring plan to emerge from bankruptcy and has improved its cash flow in recent months. Gerard also noted that the USWA will seek to intervene in any termination proceedings in order to protect the interests of its thousands of active and retired members at National Steel.
“In this era of unbridled corporate greed, we are disappointed, but not surprised, that the PBGC has acted to limit its own liability rather than fulfill its mandate to protect the pension benefits of workers and retirees like those at National Steel,” Garrett said in a statement.
Shimura also noted: “We were aware that this action eventually could occur due to the significant underfunding of our plans, large ongoing funding requirements, market conditions, and our bankruptcy filing.” However, he also noted: “We do not expect that the PBGC’s action will impact our plan to reorganize the Company. We continue to have good liquidity and will continue to provide our customers with the service and quality that they demand.”
Legacy costs such as pensions have long been an issue for the entire steel industry. In addition, the impact of the investment market over the past two years combined with low interest rates have significantly exacerbated pension funding requirements and have resulted in record pension liabilities, particularly in the steel industry.
With the termination of the National plans, the steel industry accounts for more than 40% of all claims against the pension insurance program but only 2% of covered workers, the PBGC said in announcing the pending National Steel takeover (see PBGC to Take National Steel Plans in 2nd Largest Claim Ever ).
Headquartered in Mishawaka, Indiana, National Steel Corporation is one of the country’s largest producers of carbon flat-rolled steel products and employs approximately 8,200 employees.