The Pension Benefit Guaranty Corp., which insures the pension benefits of some 40 million workers, may force the bankrupt LTV Corp. to accept responsibility for $2.3 billion in unfunded pension liabilities.
The move, one of several options that sources said the PBGC is considering on LTV, would be unprecedented in the agency's 13-year history. Although the PBGC has had similar disputes with other companies, it has never resorted to returning to an employer responsibility for pension benefits that were turned over to the government.
Sources said the agency, which terminated four of LTV's pension plans after the company filed for bankruptcy last July, has not made a decision on how to settle its differences with LTV. LTV is the nation's second-largest steel company.
The agency maintains that new pension arrangements agreed to by the company and the United Steel Workers union violate the Employe Retirement Income Security Act (ERISA) because they would restore most supplemental benefits to early retirees and provide a plan for active workers that essentially adds up to the plans that were abandoned by the company.
The bankruptcy court handing the LTV case approved the new pension arrangements over the objections of the agency.
"Such arrangements, regardless of what they are called, effectively continue the terminated plan, but the PBGC would be manipulated into picking up much of the cost. This is an abuse of the insurance system and can't be ignored," the agency said in a position paper on the LTV case.
The agency also believes it has authority under ERISA to "restore" a plan it has terminated to its former status.
Legal experts said the effect of turning back the plan to the company would be unclear because of the effect of bankruptcy laws on a company's pension obligations.
However, the agreement LTV signed with the steelworkers provides that a PBGC turnback of the plans to the company would nullify the current agreement.
"There is no case where this has ever occurred. You are in the twilight zone," said one pension expert.
LTV said that if the agency followed that course it would be "retaliation of the worst kind. Retaliation against the most innocent and helpless players: the retirees themselves," said Julian Scheer, senior vice president of corporate affairs.
Scheer added that the company would "vigorously oppose" such an action by the agency. "The PBGC took the plans because they lacked the necessary long-term resources to cover funding requirements and LTV lacked long-term resources to fund them. That has not changed," said Scheer.
Whatever course the government takes, it is unlikely that retirees would be harmed since there are $1.5 billion in assets in the plans. "There isn't a scenario under which people won't get their money," a source said. "There is no danger of benefits ceasing."
The agency, which is fighting approval granted by the bankruptcy court of LTV's new collective bargaining agreement and pension plan, could also simply reduce the monthly benefits it is paying to early retirees by the amount they are receiving under the new contract.
It also favors a different kind of trust arrangement or separate plan to assure the pension rights of current workers.
Overall, the agency, which already has a $4 billion deficit, fears that other companies will be encouraged to follow LTV's lead in shedding old, more expensive pension obligations for new programs that are riskier for employes and not insured by the government. As LTV's largest creditor, the PBGC also is concerned that payments under the new contract will lessen its claims on the company.
"The insurance system shouldn't be used to shore up corporate profits or enhance a company's competitive position," said PBGC Executive Director Kathleen Utgoff. "It's for retirees."
The agency is responsible for the pension benefits of 108,000 LTV workers, 85 percent of whom are receiving full benefits. The new pension arrangements between LTV and the steelworkers union restores about 92 percent of the pension supplements lost by some 8,000 early retirees.
LTV -- which has since turned the corner to profitability after filing for bankruptcy with $6.5 billion in liabilities, and which may emerge as one of the nation's stronger steel companies -- will pay about $90 million for all of its new plans, compared with its former $225 million average annual cost for its defined benefit plans.
About 80 percent of the agency's claims now relate to steel company bankruptcies, the largest of those being LTV and Wheeling-Pittsburgh Steel Corp.
Although large steel producers have been lobbying the government for help in further restructuring the industry and eliminating excess steelmaking capacity, it opposes allowing companies to gain a competitive advantage through parking pension liabilities with the PBGC. Companies such as Inland Steel and the steel subsidiary of USX Corp. have fully funded plans.