US – The 1.5 billion dollar takeover of steelmaker Bethlehem Steel by International Steel Group has put the fate of Bethlehem’s pension plan under scrutiny and presents the Pension Benefits Guaranty Corp. with its largest ever pension bailout.
ISG yesterday announced its acquisition of troubled US steel firm Bethlehem Steel, ending months of uncertainty. The Pension Benefit Guaranty Corp., a federal corporation that guarantees payment of basic pension benefits, has now assumed responsibility for paying pension benefits to 95,000 workers and retirees of Bethlehem, the US’s second largest steelmaker.
“The Bethlehem Steel pension plan will rank as the largest assumed by the PBGC in its 28-year history, both in terms of the number of participants and the amount of underfunding,” says the PBGC.
The move angered Bethlehem. Its chairman and chief executive Robert Miller said: “We are very disappointed that the PBGC is taking this action when Bethlehem has clearly not missed any scheduled contributions to the fund or payments from it to eligible recipients. An immediate termination is unfortunate and will adversely affect our ability to restructure our workforce in an orderly manner."
Miller called the action “premature” and said it dealt a serious blow to the potential recovery by the creditors of Bethlehem Steel.
The PBGC says the plan is massively underfunded. “According to PBGC estimates the plan is 45% funded, with 3.5 billion dollars in assets to cover 7.8 billion dollars in benefit liabilities. Of the 4.3 billion dollars in total underfunding, the PBGC expects to be liable for about 3.7 billion dollars.”
"The PBGC 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," said PBGC’s executive director Steven Kandarian.
"To safeguard the pension insurance system that protects millions of Americans, we had to act now to prevent even larger losses down the road."
The Bethlehem plan includes 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 PBGC's insurance guarantees will protect the basic pension benefits of Bethlehem Steel workers," Kandarian said. "Retirees will continue to receive their monthly checks without interruption, and other employees will receive benefits when they are eligible to retire."
It said that the decision to assume responsibility for the Bethlehem plan, the steel industry would now account for more than 50% of all claims against the federal pension insurance program but only 2% of covered workers.