Troubled Wheeling-Pittsburgh Steel Corp. yesterday unloaded its four pension funds, with $475 million in unfunded liabilities, on the Pension Benefit Guaranty Corp. It was the largest such termination in history.
Kathleen P. Utgoff, executive director of the agency that insures the pensions of American workers, reacted angrily to the action.
The pension insurance system "has been turned into a subsidy program for inefficient companies," she said.
"The PBGC is being used as a tool for reducing operating costs and bailing out banks and other creditors," said Utgoff. "These abuses endanger the retirement security of 38 million American workers."
Utgoff called for reforms in the system to protect other companies from the costs of absorbing dumped pension plans.
Wheeling-Pittsburgh, which has filed for reorganization under federal bankruptcy law, recently reduced its labor costs through collective bargaining by more than $3 to $18 per hour.
Most of that reduction resulted from abandoning its existing pension plans, which cover 21,600 participants, in favor of a new, less expensive plan.
The move effectively doubled PBGC's already large deficit to more than $1 billion. PBGC may be able to reduce its liabilities, depending on how much of the steel company's assets it can recapture through litigation.
A court hearing will be held today to determine the effective date of termination of the steel company's pension plans.
If the court accepts the company's request for a date prior to its bankruptcy filing, the company stands to save a substantial amount of money.
Wheeling-Pittsburgh, together with other steel companies that terminated their pension plans previously, now account for about one quarter of the agency's total liabilities of $2.2 billion, a larger share than any other industry.
PBGC, which insures defined-benefit pension plans, is funded by contributions from employers.
Faced with a growing deficit, the agency has asked Congress to raise the annual insurance premium employers pay per worker from the current $2.60 to more than $8.
The latest termination would require the addition of another $1.60 if the agency is to meet its long-term obligations, Utgoff said.
Wheeling-Pittsburgh's action has angered not only the insurance agency, but also the steel industry and other sectors of the economy, according to the fund's deputy executive director Royal Dellinger.
Writing in the Wall Street Journal recently, William H. Knoell, president of Cyclops Corp., a steel products company, said that the system was not meant to bail out on-going concerns, but rather to help employes of failed companies.
He wrote, "Direct competitors of the company receiving the bail-out will be competing against a company relieved of the obligation to pay for the pensions owed to its employes. In the case of Wheeling-Pittsburgh, this will be more than $57 million a year, or more than $3.25 per hour in employment costs."
Knoell concluded. "If the government intervenes to bail out corporate lame ducks while it hobbles their competition, it will save few jobs."