June 23, 3003
Pension action hurts Republic employees
By PAUL M. KRAWZAK
Copley Washington correspondent
WASHINGTON — When LTV and CSC Ltd. went out of business, a federal agency that guarantees pensions stepped in and began
paying what are called “shutdown” benefits to thousands of workers who lost their jobs.
But now that Republic Technologies International, another Ohio steel maker, is expected to close its doors, the Pension Benefit
Guaranty Corp. is taking steps to avoid paying similar monthly benefits to its displaced workers.
“It borders on criminal-ness as far as I’m concerned,” said Harry Schaefer, president of Local 1200 of the United Steelworkers union
in Canton. “I’m appalled by it. I’m shocked.”
U.S. Rep. Ralph Regula, R- Bethlehem Township, who represents Steelworkers at the Fairlawn, Ohio-based company, also said it’s
“LTV retirees got the shutdown benefits,” he said. “Here in my district, I’ve got LTV retirees and I’ve got (Republic) retirees and yet they’re being treated differently. That’s pretty unfair from where I live.”
Shutdown benefits provide cash to displaced workers who are too young to start collecting their pensions.
On June 14, the pension board asked a federal judge in Cleveland for permission to take over Republic’s pension plan before the
steel maker liquidates. That way, the agency could avoid paying shutdown benefits.
If the agency were to wait until after Republic closes to take over the plan, it would be obligated to pay the estimated $170 million in
That’s what happened with LTV, based in Cleveland, and CSC Ltd., based in Warren. The pension board waited until after the
“If we hadn’t acted (with Republic), we would have become liable for $170 million,” pension board spokesman Gary Pastorius said.
“Under law, we may take this action to prevent unreasonable increases in long-run losses to the federal insurance program.”
Pastorius said the agency has a statutory responsibility to protect the company-financed program from unreasonable losses and
keep premiums low.
Republic, a maker of special quality steel bars, is the latest U.S. steel company to teeter on the edge of survival.
The company filed for Chapter 11 bankruptcy protection last year. Its executives said they were hoping to secure a federally
guaranteed loan and pull the company out of its financially precarious state.
Those plans fell by the wayside after Republic negotiated the sale of most of its assets, including plants in Canton and Massillon and
other states and Canada, to an investment group.
The sale to KPS Special Situations Funds and Hunt Investment Group is scheduled for early next month. The new owners plan to
reopen Republic under a different name, saving 2,500 of 4,000 existing jobs. They will not take on the obligation to pay pensions
and other benefits to retirees and workers who lose their jobs.
That’s where the pension board comes in. The federal corporation, created in 1974, insures benefit plans for millions of workers. It
pays basic pension benefits when companies go under.
In many cases, the maximum pensions paid by the agency are less than what the companies paid. The pension board receives no
general tax revenues. It finances its operations largely through insurance premiums paid by companies that sponsor pension plans.
When Republic closes, the agency will take on the responsibility to pay pensions to 2,000 retirees and 4,000 employees when they
become eligible. The company set aside $165 million to pay pensions. That’s $310 million short of the estimated $475 million
long-term cost of the program, the agency said.
That means the pension board has to make up the $310 million shortfall.
The company has not reserved any funds to pay for another $170 million in shutdown benefits.
Under the contract at Republic, employees who worked for the company at least 20 years but less than 30 years are eligible for
shutdown benefits until they begin collecting their pensions, Schaefer said.
Why did the pension board wait until LTV and CSC closed before taking over their plans, when it is moving to avoid paying shutdown
benefits at Republic?
The pension board says it is clear Republic will soon cease to exist, while it was unclear LTV and CSC would go out of business until
LTV closed Dec. 7, throwing 18,000 employees out of work. When CSC shut down on April 13, 2001, more than 1,200 employees
lost their jobs.
“With (Republic), it was clear for some time that the company was liquidating and they would cease to exist after all assets were sold
off in bankruptcy,” Pastorius said. “In the LTV case, the liquidation wasn’t a certainty until after a court order in December 2001 that
approved the company’s liquidation.”
Earlier, LTV was seeking a federally guaranteed loan to provide funds for continued operations.
“Even after the company decided not to pursue the loan guarantee, LTV’s liquidation plan was contested by both the union and the
creditors,” Pastorius added. “So it would have been very difficult for the PBGC to terminate the LTV plans at a time when their
reorganization and continuation of the pension plans was still a possibility.”
John Willoughby, vice president of human resources at Republic, protested the agency’s move to take over the pension plan. But he
does not deny that the company will liquidate after the sale.
Republic and several of its plants not part of the sale will remain in bankruptcy after the purchase. The new owner will operate some
of those excluded plants for an undetermined period of time. Even so, preparations are being made to “sell or liquidate those
excluded assets,” Willoughby said.
The union said it will challenge the pension takeover in federal court by midweek.
“We’re very unhappy about it,” said Paul Whitehead, general counsel for the steelworkers.
Regula met Wednesday with Steven Kandarian, the pension board’s executive director, to protest the board’s action. Regula plans to
“work closely with Labor Department officials to seek solutions for those workers” who would be left without shutdown payments, he