The government's pension insurance agency said yesterday that it has notified bankrupt Bethehem Steel Corp. that it intends to take over the giant steel company's pension plan, a move that Bethlehem officials immediately criticized as premature and counterproductive.
The takeover by the Pension Benefit Guaranty Corp. would be the largest in its history. Bethlehem's pension-plan liabilities currently total about $6 billion, of which between $3.2 billion and $4 billion are unfunded, depending on the accounting method used, according to Robert S. Miller, Bethlehem chairman and chief executive.
With the assumption of the Bethlehem pension plan, the steel industry accounts for more than half of all claims against the federal pension insurance program but only 2 percent of covered workers, according to the pension agency. Since Oct. 1, 2001, the agency has absorbed more than $6 billion in claims from steel companies. The three largest claims in the agency's history are from Bethlehem Steel; LTV Steel Corp., which the agency assumed in March 2002; and National Steel Corp., which the agency announced earlier this month that it is seeking to take over.
Miller said in an interview that the company does not dispute that the pension agency will ultimately have to take over the plan. "We have publicly said we have no business plan that ultimately catches up with the shortfall. We are upset about the timing," Miller said.
Bethlehem is currently in negotiations with International Steel Group, which includes the former LTV Corp., on a merger in which ISG would acquire Bethlehem's assets to form what would be the nation's largest steel company. But a key to that, Miller said, is "an orderly reduction of our workforce," which must be worked out with the company's unions.
Bethlehem's management is hoping to use early-retirement provisions in its pension plan to ease workers' exodus, but if the plan is terminated, "the early-retirement mechanism is unavailable for us," Miller said.
In addition, he said, workers would be ineligible for health care insurance tax credits created by this year's Trade Act if they lose their jobs and do not go into "pension status."
"The federal program of safety nets for workers who have been devastated by unfair imports was meant to protect the very workers who will be adversely affected by this early termination of our plan," Miller said in a statement.
According to the pension agency, the Bethlehem pension plan has more than 67,000 retirees currently receiving benefits, more than 15,000 former employees who will be eligible for a benefit at retirement age, and nearly 13,000 active workers.
The steel industry and the government have been battling in recent years over how to deal with the threat of inexpensive imported steel and the enormous "legacy costs," primarily pensions and health care for retirees, now borne by domestic steel producers.
Steven A. Kandarian, the pension agency's executive director, said in a statement late yesterday that his agency "is moving to protect the basic pension benefits of Bethlehem's workers and retirees because the company can no longer afford to maintain its pension plan." The termination will take effect tomorrow, he said. "We had to act now to prevent even larger losses down the road," Kandarian added.
The pension benefit agency uses somewhat different numbers for the plan's assets and liabilities. According to the agency's estimates the plan is 45 percent funded, with $3.5 billion in assets to cover $7.8 billion in benefit liabilities. Of the $4.3 billion in total under-funding, the federal agency expects to be liable for about $3.7 billion.
Over the past year, Miller has been saying publicly that the federal agency's takeover of Bethlehem's pension was "a precondition" for the merger with ISG.
Agency officials expressed surprise that after all but demanding a takeover, Miller is now unhappy about it.
Miller acknowledged that by waiting the agency would incur higher liabilities. But he argued that the pension agency is Bethlehem's largest creditor, and the merger would be of sufficient value to Bethlehem's bankruptcy "estate" that the agency would be better off waiting, allowing the company to use the plan's early retirement benefits, and then recovering more in bankruptcy.
The Pension Benefit Guaranty Corp. currently guarantees payment of basic pension benefits earned by about 44 million American workers and retirees participating in over 35,000 private-sector pension plans. Its operations are financed largely by insurance premiums paid by companies and by investment returns. As of this summer, the agency had a surplus of about $4.8 billion.