In the largest pension claim ever made, Allis-Chalmers Corp., a manufacturer of heavy machinery and farm equipment, this week asked the Pension Benefit Guaranty Corp. to assume $165 million in liabilities caused by the termination of its pension plan covering 8,500 United Auto Workers.
The company, which has experienced severe financial difficulties, announced Tuesday that it was unable to continue funding its plan, now supported by only 700 UAW members. The majority of those covered, 6,300, are retired. Another 1,000 vested workers, who will be owed pension benefits when they reach retirement age, have left the company. Of the current "active" work force of 1,300, 600 have been laid off. By the start of next year, the company plans to cut the work force to 130.
UAW Vice President Bill Casstevens called Allis' action "the most blatant violation of a written agreement I've ever witnessed." The company had pledged not to terminate its plan under the current three-year contract, which expires in 1986. "The UAW is currently reviewing all available options to secure equity and justice for more than 8,000 participants," he added. A UAW spokesman said the union would seek an injunction in the next 24 to 48 hours to prevent Allis from ending its plan.
PBGC's acting executive director, David M. Walker, said yesterday that the plan was poorly funded. Beneficiaries could have expected to get only 3 cents on the dollar of guaranteed benefits if PBGC did not exist. PBGC must assume the liabilities of any plan that is terminated. As a result, beneficiaries can anticipate receiving the vast majority of their benefits, Walker said. PBGC is a government-chartered corporation funded by employer contributions.
For PBGC, which has financial difficulties of its own, this represents by far the largest claim in its 10 1/2-year history. PBGC is now engaged in negotiations with Allis-Chalmers in the hope of recovering up to 30 percent of the company's net worth, the legal limit. The next-largest claims, of $63 million each, were filed by White Motors and Wisconsin Steel several years ago. PBGC recovered $15 million from White Motors, while the other case is still in litigation.
PBGC is currently responsible for 150,000 participants whose plans have been terminated. It pays out up to $1,687 per month to each beneficiary, for a total of $14 million a month to 6,300 retirees. The additional burden of Allis-Chalmers participants will raise the number of retirees whose benefits are being paid by the board to 8,500 and the monthly payout to $16 million.
PBGC's current deficit is in excess of $600 million a year. That deficit is projected to amount to $1.3 billion by 1989, if Congress does not act to raise insurance premiums. Single employer plans are now assessed at $2.60 per person per year, a rate that has not risen since 1978. PBGC calculates that the annual premium will have to rise to $7.50 per capita to meet the $185 million annual losses the insurer anticipates over the next 15 years. These will come from mature industries such as steel, meat packing, transportation and agriculture that are experiencing hard times and employing fewer workers.
The Allis-Chalmers case "reinforces the need for timely legislative action to assure PBGC's financial integrity," said Walker. PBGC has made a similar request annually for several years. Another bill to raise the premiums was introduced in the House this week.